Drax cut to 'sector perform' by RBC Capital Markets

18th Jun 2015 07:46

RBC Capital Markets downgraded Drax to 'sector perform' from 'outperform' and slashed the price target to 380p from 575p, as a result of continued weakness in commodity markets and extended uncertainty on incentive mechanism for biomass conversions."Commodity markets are working against Drax, and we see little prospect that the weakening in dark green spreads will reverse," said RBC.The broker said its view on potential further weakness in UK power prices is more bearish than the market, adding that this may drive the stock in the near to medium term.RBC said: "Unexpected volatility in commodity prices could make Drax diverge in performance versus the sector. On top of risks to the biomass supply chain, plant operations remain susceptible to interruption and the management team at Drax need to remain alert to these risks."At 08:20, shares were down 2.2% at 362p.