Drax Group (LON:DRX) continues to demonstrate financial resilience and strategic clarity as it launches the fourth and final tranche of its ambitious £300 million share buyback programme. According to a recent research note from Longspur Research, the company has announced plans to repurchase up to £75 million in shares, reinforcing investor confidence in its long-term vision and capital discipline.
Since July 2024, Drax has been steadily executing this repurchase initiative, completing three tranches and returning £225 million to shareholders. The current and final phase seeks to buy back up to 33,469,342 shares, subject to market conditions and trading volumes. While there’s no certainty the full tranche will be executed, the previous pace – completing three-quarters of the programme within ten months – signals strong intent.
Longspur Research Analyst Adam Forsyth highlights the significance of this move in the context of Drax’s broader strategy. “We do not think this means that the company will not pursue other opportunities for investment in other real assets but we do think it emphasises the strong financial discipline exercised by the company,” he states in the report.
This decision follows Drax’s withdrawal from pursuing the Harmony Investment Trust acquisition after a counter-offer close to net asset value emerged from funds managed by Foresight Group. Rather than overextending financially, Drax chose prudence – a move Longspur views positively.
Legislative Progress Supports Biomass Transition
The timing of this share buyback coincides with positive regulatory developments. The UK Parliament’s second delegated legislation committee has passed key amendments under the Contracts for Difference framework. These changes pave the way for a bridging mechanism to support biomass generation at Drax Power Station between 2027 and 2030.
Although a final House of Lords decision and commercial negotiations remain, the momentum is promising. Forsyth notes, “The energy security needs of the country make it difficult to see Drax facing any disincentive to provide generation under the mechanism in our view.”
This development is crucial for Drax’s biomass operations, ensuring continuity as the UK transitions to net-zero targets. It also aligns with the company’s integrated model that spans bioenergy generation, hydro, pumped storage, and pellet production.
Financial and Operational Highlights
The research note also provides a comprehensive financial overview, showcasing the robustness of Drax’s performance:
- FY 2024 Sales reached £6.16 billion, down from £7.84 billion in 2023, reflecting a pricing drop, yet profitability held steady with EBITDA rising slightly to £1.05 billion.
- Net Debt dropped significantly to £937 million in 2024 from £1.18 billion in 2023, indicating enhanced financial health.
- EPS rose to 128.4p in 2024 from 119.6p in 2023.
- Dividend per Share continues to increase, with 26.0p declared for 2024 and projections pointing to 28.6p in 2025.
- A strong free cash flow yield of 21.1% in 2024 underpins dividend sustainability and future capital flexibility.
Drax also benefits from a stable ownership base, with top institutional investors like Invesco, Vanguard, BlackRock, and M&G collectively holding 45% of shares.
Outlook and Strategy
Looking ahead, Drax anticipates a more balanced growth and investment profile. While sales are forecast to decline to £5.14 billion in 2025, cost control and strategic asset management are expected to support margins. By 2026, net debt is projected to fall further to £357 million.
The company’s operational diversification remains a key strength. From its large-scale pellet production facilities to renewable generation assets, Drax is well-positioned to navigate industry shifts. The anticipated continuation of government support mechanisms like the biomass bridging legislation will also be critical in ensuring consistent revenue streams.
Longspur’s financial model also points to sustained dividend growth and strong coverage, which is reassuring for income-focused investors. Forsyth notes, “Dividend remains covered throughout,” reinforcing confidence in Drax’s capital return strategy.
Final Thoughts
Drax Group’s latest move to complete its £300 million buyback programme signals more than just shareholder returns – it is a clear endorsement of its capital discipline, strategic foresight, and operational strength. Backed by advancing regulatory support for biomass and a prudent investment philosophy, Drax appears set to navigate the energy transition with resilience and purpose.
Longspur Research’s insights provide a compelling case for continued investor interest, with Adam Forsyth’s commentary underlining the disciplined approach that defines Drax’s current trajectory.
