SocGen ups Drax to 'hold' following share price decline

27th Jul 2015 10:55

(ShareCast News) - Societe Generale upgraded Drax to 'hold' from 'sell' following a material share price fall, but slashed the price target to 270p from 400p as it downgraded its core earnings forecast to reflect further weakness in power prices/coal spreads.SocGen noted that year-to-date, Drax is the worst-performing Stoxx 600 stock and now trades below its fair value target.However, in the absence of greater regulatory clarity, it does not perceive the shares as currently offering a clearly attractive risk/reward scenario.Drax is due to report first-half earnings on 28 July and the French bank forecasts earnings before interest, tax, depreciation and amortisation of £90m versus £102m in 2014 and earnings per share of 6.8p versus 9.4p.In addition, SocGen cut its 2016 EBITDA estimate to £131m from £263m as a result of lower power price assumptions and the £60 impact from the removal of the Climate Change Levy exemption for renewable electricity from August 2015.It said weak power market conditions have reduced the expected cash flow from Drax's existing coal and biomass units while regulatory developments have pruned back the prospects of growth relating to State aid clearance for the third unit or a fourth unit biomass conversion.At 10:10, Drax shares were up 0.9% at 257p.