Drax shares drop on RBC Capital downgrade

20th Aug 2015 10:49

(ShareCast News) - Drax was under pressure after RBC Capital Markets cut its stance on the stock to 'underperform' from 'sector perform' and reduced the price target to 270p from 300p."Dark green spreads continue to decline, clarity on state aid clearance for the third biomass unit contract for difference continues to be delayed and multiples look stretched on our lower estimates," said RBC, adding that it sees few reasons to own the stock in this environment.The Canadian bank said outer year earnings before interest, tax, depreciation and amortisation forecasts have been cut by around 20% as a result of lower power prices.Based on its new view that EBITDA will be broadly flat around £160-£170m for the next three years, it estimates that Drax is trading on an EV/EBITDA multiple of around 8x. RBC said this does not adequately reflect the commodity sensitive nature of Drax."Furthermore, on a price-to earnings basis Drax is quite clearly the most expensive stock within the sector," it said.In addition, it said the stock is unattractive in terms of its dividend yield, which is around 1.5%.At 1057 BST, Drax shares were down 1.1% at 290.80p.