Drax Group plc (DRX.L) | Investment Case

1. Company Snapshot

1.a. Company Description

Drax Group plc, together with its subsidiaries, engages in renewable power generation in the United Kingdom.The company operates through three segments: Generation, Customers, and Pellet Production.The Generation segment provides renewable, dispatchable power, and system support services to the electricity grid.

The Customers segment offers non-generation system support and energy management services.The Pellet Production segment provides low carbon fuel.The company owns and operates Drax Power Station with an installed capacity of 2,000 megawatts (MW) located in Selby, North Yorkshire; Cruachan Power Station, a pumped hydro storage station, with an installed capacity of 440 MW located in Argyll and Bute, and Lanark and Galloway hydro-electric power stations with an installed capacity of 126 MW located in southwest Scotland.

In addition, the company owns and operates Daldowie fuel plant that processes sludge, a plant that converts it into dry low-odour fuel pellets.Further, it manufactures and sells compressed wood pellets; and supplies renewable electricity.Drax Group plc was incorporated in 2005 and is based in Selby, the United Kingdom.

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1.b. Last Insights on DRX

Drax Group plc's recent performance has been positively driven by growing investor optimism surrounding the company's potential to benefit from the UK's rapidly expanding data center industry. The surge in shares to their highest level in over three years reflects this sentiment. Additionally, the company's status as a top UK dividend stock has made it an attractive choice for investors seeking stability and income amid global economic uncertainties. A recent focus on dividend stocks, driven by weak trade data from China, has further bolstered Drax's appeal.

1.c. Company Highlights

Last Price	867
Change Percentage	0.12%
Open	867
Previous Close	866
Market Cap ( Millions)	2930
Volume	1083512
Year High	937.5
Year Low	534.5
M A 50	877.39
M A 200	745.5

FCF Yield	18.01%
Dividend Yield	2.68%
ROE	3.94%
Debt / Equity	67.01%
Net Debt / EBIDTA	105.37%
Price To Book	2.19
Price Earnings Ratio	51.33
Price To FCF	5.55
Price To sales	0.54
EV / EBITDA	4.7

2. Drax's 2025 Earnings: A Strong Performance Amidst Energy Transition

Drax reported a strong financial performance in 2025, with adjusted EBITDA reaching GBP 947 million, driven by record biomass power production. Adjusted earnings per share increased by 7% to 137.7p. However, the actual EPS came out at a loss of 0.342 relative to estimates of 0.608. Revenue growth is expected to decline by 5.2% next year. The company's financial performance was supported by a strong operational performance across the group, with a record level of renewable power and pellet production.

Publication Date: Mar -01

                                    📋 Highlights
                                    GBP 947 million adjusted EBITDA:
                                                in 2025 with 7% increase in adjusted EPS to 137.7p
GBP 300 million share buyback:
                                                completed and GBP 450 million program initiated; 11.5% dividend increase to 29p/share
GBP 230 million debt repayment:
                                                in 2025 and GBP 150 million annual cost savings target by 2027
GBP 0.5 billion allocated to battery investments:
                                                , including 260MW projects and tolling agreements for 450MW
GBP 385 million impairment charges:
                                                recognized for Canadian pellet business, Longview project, and BECCS at Drax

                                

Segmental Performance

The biomass generation business had another strong year, capturing value from meeting higher winter demand and benefiting from cost reductions in the U.S. South. However, pellet production's EBITDA reduced due to an expected softening in the global pellet market post-2027 and a constrained fiber supply in British Columbia and Alberta. The company has recognized a charge of GBP 198 million due to reduced expectations for the Canadian business.

Growth Plans and Investments

Drax is investing in growth opportunities, including developing 1 gigawatt or more of data center capacity at the Drax Power Station and a gigawatt-scale BESS pipeline. The company has committed GBP 0.5 billion to battery investments and has acquired 3 development projects for 260 megawatts. Drax is also exploring the potential for intermittent renewables to be added to its portfolio, which would be a logical extension of its core business.

Valuation and Returns

Using the current valuation metrics, Drax's P/E Ratio stands at 52.51, indicating a relatively high valuation. The EV/EBITDA ratio is 4.79, suggesting a reasonable valuation for the company's earnings before interest, taxes, depreciation, and amortization. The Dividend Yield is 2.62%, providing a relatively stable return for shareholders. The company's ROE is 3.94%, and ROIC is 6.26%, indicating a decent return on equity and invested capital.

Outlook and Conclusion

Drax is well-positioned for growth, with a new CfD and a strong growth trajectory from 2027. The company expects to invest £2 billion of available cash flow going forward. With a mix of 50% biomass and 60% FlexGen, Drax is poised to benefit from the energy transition. The company's focus on flexible renewable generation and its commitment to enabling a lower-cost, zero-carbon energy future are expected to drive long-term value for stakeholders.

3. NewsRoom

Top UK Dividend Stocks To Consider In December 2025

Dec -04

Source:

Drax Shares Surge on Data Center Hopes

Nov -12

Source:

Top UK Dividend Stocks For November 2025

Nov -05

Source:

3 UK Dividend Stocks Yielding Up To 4.5%

Oct -07

Source:

UK Dividend Stocks To Consider In September 2025

Sep -08

Source:

Drax Group First Half 2025 Earnings: EPS: UK£0.61 (vs UK£0.88 in 1H 2024)

Aug -02

Source:

3 UK Dividend Stocks To Consider With Up To 5.9% Yield

Jul -31

Source:

Drax Appoints Deidra L. Jackson as Senior Vice President of Corporate Affairs for North America

Jul -16

Source:

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (8.16%)

6. Segments

Customers

Expected Growth: 7.92%

Drax Group plc's 7.92% growth is driven by increasing demand for renewable energy, strategic acquisitions, and expansion into new markets. The company's focus on biomass and hydroelectric power generation, coupled with favorable government policies and incentives, have contributed to its growth momentum.

Generation

Expected Growth: 8.23%

Drax Group plc's 8.23% growth is driven by increasing demand for renewable energy, successful biomass conversion, and improved operational efficiency. Additionally, the UK's transition to a low-carbon economy and government incentives for clean energy have contributed to the company's growth.

Pellet Production

Expected Growth: 10.98%

Drax Group plc's pellet production growth of 10.98% is driven by increasing demand for renewable energy, government incentives for biomass power generation, and expansion into new markets. Additionally, the company's strategic acquisitions and investments in pellet production facilities have enhanced capacity and efficiency, contributing to the growth.

Exceptional Items and Certain Remeasurements

Expected Growth: 7.77%

Drax Group plc's exceptional items and certain remeasurements growth of 7.77% is driven by increased biomass generation, higher electricity prices, and improved operational efficiency. Additionally, the company's strategic acquisitions and divestments, as well as favorable foreign exchange rates, have contributed to this exceptional growth.

7. Detailed Products

Renewable Energy

Drax Group plc generates renewable energy through its biomass power stations, hydroelectric power stations, and wind farms.

Electricity Generation

Drax Group plc generates electricity from a diverse portfolio of power stations, including biomass, gas, and hydroelectric power stations.

System Support Services

Drax Group plc provides system support services, including frequency response, reserve power, and grid stability services.

Energy Storage

Drax Group plc offers energy storage solutions, including pumped hydro storage and battery storage.

Business Energy Supply

Drax Group plc supplies energy to businesses, offering tailored energy solutions and expert advice.

Haven Power

Drax Group plc's Haven Power business provides business energy solutions, including energy supply, energy management, and sustainability services.

8. Drax Group plc's Porter Forces

Forces Ranking

Threat Of Substitutes

Drax Group plc operates in the renewable energy sector, which has a relatively low threat of substitutes. While there are alternative energy sources, such as fossil fuels, the shift towards renewable energy is driven by government policies and regulations, reducing the threat of substitutes.

Bargaining Power Of Customers

Drax Group plc's customers are primarily large industrial and commercial entities, which have limited bargaining power due to their dependence on the company's renewable energy solutions.

Bargaining Power Of Suppliers

Drax Group plc relies on a diverse range of suppliers for biomass and other inputs, which reduces the bargaining power of individual suppliers. However, the company is still exposed to fluctuations in global commodity prices.

Threat Of New Entrants

The renewable energy sector is experiencing rapid growth, attracting new entrants and increasing competition. Drax Group plc faces a high threat of new entrants, which could erode its market share and pricing power.

Intensity Of Rivalry

The renewable energy sector is highly competitive, with numerous established players and new entrants vying for market share. Drax Group plc operates in a highly competitive environment, which increases the intensity of rivalry.

9. SWOT Analysis

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

	Value
Debt Weight	42.39%
Debt Cost	9.71%
Equity Weight	57.61%
Equity Cost	9.71%
WACC	9.71%
Leverage	73.59%

11. Quality Control: Drax Group plc passed 5 out of 9 key points

Strong Liquidity

Low Deb

Strong Interest Coverage

Healthy Cash Flow

Operating Inefficiency

Strong Return On Equity

Consistent Revenue Growth

Consistent Operating Cash Flow Growth

Margin Improvement

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Drax

A-Score: 6.8/10

Value: 8.8

Growth: 8.0

Quality: 5.8

Yield: 5.6

Momentum: 6.0

Volatility: 6.3

1-Year Total Return ->

BKW

A-Score: 5.9/10

Value: 3.9

Growth: 6.1

Quality: 5.6

Yield: 3.8

Momentum: 7.0

Volatility: 9.0

1-Year Total Return ->

ERG

A-Score: 5.8/10

Value: 3.9

Growth: 5.2

Quality: 5.0

Yield: 6.9

Momentum: 6.0

Volatility: 8.0

1-Year Total Return ->

Fortum

A-Score: 5.4/10

Value: 3.3

Growth: 2.8

Quality: 5.9

Yield: 5.0

Momentum: 9.0

Volatility: 6.7

1-Year Total Return ->

Acciona Energías Renovables

A-Score: 5.0/10

Value: 7.5

Growth: 4.8

Quality: 5.3

Yield: 1.9

Momentum: 5.5

Volatility: 5.3

1-Year Total Return ->

Atlantica Sustainable Infrastructure

A-Score: 4.1/10

Value: 2.5

Growth: 5.1

Quality: 3.9

Yield: 5.0

Momentum: 5.0

Volatility: 3.0

1-Year Total Return ->

Peers Metrics

12.e Scoring ^Insights

12.f DCF ^BETA

Parameters

Short Term Growth

-6.44%

Short term Time

10.0

Long-Term Growth

2.00%

WACC

9.71%

Drax Group plc - GB00B1VNSX38

1. Company Snapshot

1.a. Company Description

1.b. Last Insights on DRX

1.c. Company Highlights

Higher Growth

Cheaper

Medium Volatility

Average Yield

Better Quality

Stable Momentum

Strong Momentum

Average Quality

2. Drax's 2025 Earnings: A Strong Performance Amidst Energy Transition

Segmental Performance

Growth Plans and Investments

Valuation and Returns

Outlook and Conclusion

3. NewsRoom

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (8.16%)

6. Segments

Customers

Expected Growth: 7.92%

Generation

Expected Growth: 8.23%

Pellet Production

Expected Growth: 10.98%

Exceptional Items and Certain Remeasurements

Expected Growth: 7.77%

7. Detailed Products

Renewable Energy

Electricity Generation

System Support Services

Energy Storage

Business Energy Supply

Haven Power

8. Drax Group plc's Porter Forces

Forces Ranking

Threat Of Substitutes

Bargaining Power Of Customers

Bargaining Power Of Suppliers

Threat Of New Entrants

Intensity Of Rivalry

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

11. Quality Control: Drax Group plc passed 5 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

8.67$

Current Price

8.67$

Potential

-0.00%

Expected Cash-Flows

12.e Scoring ^Insights

12.f DCF ^BETA