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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's recent momentum is driven by investors betting on the company's potential to benefit from the UK's rapidly expanding data center industry. The company's prospects are buoyed by its position as a major utility player, poised to capitalize on increasing demand for data center capacity. Additionally, the uncertain market environment, influenced by weak trade data from China, has investors seeking stability, making dividend stocks like Drax an attractive choice. Drax's dividend stock status offers a reliable income stream, providing a cushion against market volatility.

1.c. Company Highlights

2. Drax Group's Financial Performance Surges

Drax Group reported a strong performance in the first half of 2025, with adjusted EBITDA of £460 million, reflecting delivery across all segments of the business. The company's revenue growth was driven by increased power production, accounting for 5% of UK power and 11% of UK renewables. Pellet production reached a record level, 5% higher than last year, driving increased EBITDA in the pellet business. Earnings per share (EPS) came in at 0.604, beating estimates of 0.397. The company's robust financial performance is a testament to its operational excellence and strong balance sheet.

Publication Date: Aug -07

📋 Highlights
  • Strong Financial Performance: Adjusted EBITDA reached £460 million in H1 2025, driven by contributions from all business segments.
  • Record Pellet Production: Pellet output rose 5% year-on-year, achieving record levels and boosting EBITDA in the pellet business.
  • Low-Carbon Agreement: Secured a CfD agreement with the UK government through 2031, expected to generate £100-200 million annual EBITDA.
  • Robust Balance Sheet: Net debt to LTM adjusted EBITDA ratio of 1.1x, supported by a £450 million share buyback extension.
  • Sustainable Dividend Growth: Interim dividend increased by 11.5% to 11.6p per share, with a strong track record of 11% annual dividend growth since 2017.

Operational Highlights

The company produced more power than last year, with a significant increase in pellet production. This operational growth has enabled Drax to target EBITDA of £600-700 million from FlexGen, Pellet Production, and the Drax Power Station post-2027. A low-carbon dispatchable CfD agreement with the UK government was agreed, covering all four units at the Drax Power Station through March 2031, allowing the company to deliver £100-200 million of EBITDA per year.

Financial Position and Capital Allocation

Drax has a strong balance sheet with a net debt to last 12 months adjusted EBITDA ratio of 1.1x. The company has a robust capital allocation policy, with an interim dividend of 11.6p per share, an 11.5% increase, and a £272 million completed share buyback program. An additional £450 million, 3-year extension of the share buyback program was announced, demonstrating the company's commitment to returning capital to shareholders.

Valuation and Investment Potential

At current prices, Drax trades at a P/E ratio of 4.96, a P/B ratio of 1.26, and an EV/EBITDA ratio of 3.03. The stock offers a dividend yield of 3.19% and a free cash flow yield of 19.88%. With a ROIC of 13.89% and ROE of 24.84%, the company's strong profitability and efficient capital allocation are evident. According to Andrew Skelton, CFO, "Drax is well-placed with high-quality assets, a robust balance sheet, and good visibility over future cash flows."

Growth Opportunities and Sustainability

The company is exploring opportunities in long-duration storage, including its Cruachan project, which is expected to deliver returns in excess of 20%. Drax is also working on a data center project, which could involve a 100-megawatt development scaling to over 1 gigawatt through the 2030s. The company's focus on sustainability is evident in its new climate transition plan and sustainability frameworks, aiming to deliver tangible results to improve sustainability, with a focus on decarbonization targets through 2040.

Outlook and Challenges

While Drax expects to generate £600-700 million in EBITDA post-2027, there is some uncertainty around the pellet business. The company may face challenges in achieving this target, and investors will be closely monitoring the company's progress. Nevertheless, Drax's strong financial performance, operational excellence, and growth opportunities make it an attractive investment proposition.

3. NewsRoom

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Top UK Dividend Stocks To Consider In December 2025

Dec -04

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Drax Shares Surge on Data Center Hopes

Nov -12

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Top UK Dividend Stocks For November 2025

Nov -05

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3 UK Dividend Stocks Yielding Up To 4.5%

Oct -07

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UK Dividend Stocks To Consider In September 2025

Sep -08

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

Aug -02

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

Jul -31

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

Jul -16

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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

Strength

Weaknesses

Opportunities

Threats

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

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Stock-Card
Drax

A-Score: 6.7/10

Value: 8.8

Growth: 8.0

Quality: 5.3

Yield: 5.6

Momentum: 6.0

Volatility: 6.7

1-Year Total Return ->

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BKW

A-Score: 5.9/10

Value: 3.9

Growth: 6.1

Quality: 5.4

Yield: 3.8

Momentum: 7.0

Volatility: 9.3

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ERG

A-Score: 5.3/10

Value: 4.0

Growth: 5.2

Quality: 4.8

Yield: 6.9

Momentum: 3.5

Volatility: 7.3

1-Year Total Return ->

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Fortum

A-Score: 5.3/10

Value: 3.8

Growth: 2.8

Quality: 6.1

Yield: 5.0

Momentum: 7.0

Volatility: 7.0

1-Year Total Return ->

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Acciona Energías Renovables

A-Score: 5.2/10

Value: 7.3

Growth: 4.8

Quality: 5.3

Yield: 1.2

Momentum: 7.0

Volatility: 5.7

1-Year Total Return ->

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Atlantica Sustainable Infrastructure

A-Score: 4.7/10

Value: 3.5

Growth: 5.1

Quality: 3.9

Yield: 5.6

Momentum: 4.0

Volatility: 6.3

1-Year Total Return ->

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Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

7.71$

Current Price

7.71$

Potential

-0.00%

Expected Cash-Flows