RBC cuts Drax price target on Budget hit

9th Jul 2015 14:13

RBC Capital Markets cut its price target on power generator Drax to 300p from 380p following Chancellor George Osborne's announcement on Wednesday of the removal of the Climate Change Levy exemption for renewable electricity generated after 1 August 2015.The broker said this means Drax will no longer earn revenues from Levy Exemption Certificates (LECs) on biomass generated electricity output. "This is yet another material piece of negative news for Drax that we estimate is worth around 80p a share," it said.RBC had updated its estimates for the lost LEC revenues which result in the loss of around £30m in EBITDA in 2015 and around £60m in 2016 and beyond. This is a cut of around 25% to RBC's previous 2016 estimate and tallies with Drax's own announcement on the impact of the CCL change.The bank said the lost EBITDA flows through to earnings per share with a resultant impact of around 5.5p a share in 2015 and around 12p a share thereafter."Based on our new 300p price target, we see some underlying value in Drax. However, it is difficult to see positive catalysts in the current weak commodity environment."RBC kept the stock at 'sector perform'.At 14:20, Drax shares were up 6.8% at 271.90p, having fallen to an all-time low on Wednesday.