The latest research note from Longspur Research has highlighted Drax Group’s (LON:DRX) resilient operational performance and growing long term optionality, despite ongoing geopolitical and market volatility.
According to Longspur analysts Adam Forsyth and Max Campbell, Drax has continued to trade in line with expectations while reinforcing its contracted revenue base and accelerating shareholder returns. The note states that management has reiterated FY26 Adjusted EBITDA guidance in line with market consensus at around £665 million, supported by solid operational delivery across the business.
Longspur described the update positively, writing: “The update points to earnings visibility, robust capital discipline, and growing strategic optionality.”
The broker noted that Drax has strengthened its forward contracted power position at attractive prices. The company is now fully hedged for 2026 and has continued locking in forward sales through to 2028. Longspur highlighted that recent transactions were completed at prices significantly above the blended achieved price across the wider generation portfolio.
Operationally, several key assets continue to perform well. Longspur said that Cruachan units 1 and 2 are operating strongly, while upgrade works continue on units 3 and 4. The report also confirmed that commercial control of the Hirwaun open cycle gas turbine project is expected shortly. Pellet production remains stable, with management continuing to focus on cost reductions in the United States while also reviewing strategic options in Canada.
Importantly, the acquisition of Flexitricity and new Capacity Market awards worth £11 million have helped increase total contracted revenues to £650 million. Longspur believes this strengthens earnings visibility and supports Drax’s strategic transition towards more flexible generation assets.
The analysts also pointed to Drax’s commitment to shareholder returns. The company has already completed the first £75 million share buyback tranche and plans to begin a second £75 million programme in May, alongside a proposed final dividend of 17.4p per share.
Financial Highlights
- FY26 Adjusted EBITDA guidance maintained at approximately £665 million
- Total Capacity Market awards increased to £650 million
- More than £1 billion of forward power sales secured for 2026 to 2028
- First £75 million buyback completed, second tranche launching in May
- Final dividend of 17.4p proposed
- FY26 dividend forecast of 31.5p per share
- Net debt forecast to reduce significantly over the medium term
While Longspur has reduced some forward estimates following longer than expected outages at Cruachan and a more cautious outlook for pellets, the broker still sees substantial value in the shares. Its updated central valuation stands at 1062p, compared with Drax’s share price of 865.4p at the time of publication.
Longspur also outlined several long term growth drivers for the business, including increasing demand for flexible power generation, growth in battery storage, and the potential development of BECCS, bioenergy with carbon capture and storage. The report notes that Drax’s combination of biomass, hydro and flexible generation assets positions the company strongly within the evolving UK energy market.
The analysts said: “We think that the fact that Drax can meet many of the needs of the GB electricity system means that it will continue to be supported.”
On a Final Note, Longspur Research’s latest update suggests that Drax continues to demonstrate resilience through volatile market conditions while building longer term strategic opportunities across flexible generation, storage and renewable infrastructure. Although some forecast reductions have been made, the broker continues to see meaningful upside potential supported by contracted revenues, disciplined capital allocation and operational delivery.
