UBS downgrades Drax after failed subsidy appeal

11th Aug 2014 10:46

The risk/reward balance at Drax has lost its attractions, according to UBS, which downgraded the stock from 'buy' to 'neutral' on Monday, causing shares in the power plant group to fall.Last week, the government won an appeal against granting Drax a subsidy to convert its second unit of its coal-fired power station to burn biomass. UBS said the news "has reduced the potential valuation upside for Drax"."Though valuation risk remains positive on UBS's estimate, the reduction in upside reduces the risk/reward balance to levels which we believe most marginal investors will no longer find attractive," the bank said.Analysts said that investors are likely to wait "until confidence is restored" before factoring in future potential at Drax. Meanwhile, it is losing confidence that the Department for Energy and Climate Change will rigorously support biomass conversion.The target price for the stock has been slashed from 800p to 680p.Drax's shares were down 2.1% at 637.5p by 11:01.BC