Friday, 23 September 2011

Broker snap: Uncertainties surround Drax, says Credit Suisse

Credit Suisse has cut its target price for power provider Drax from 400p to 350p, highlighting uncertainties surrounding regulation and the economy.

The stock has been relatively immune to the summer global sell-off, rising 32% over the year to date on the back of rising clean dark spreads (gross margins) and consensus earnings upgrades, the broker said.

While Credit Suisse has upped its 2012 earnings per share forecasts by 29%, it believes that dark spreads have peaked: “We do not see much further upside potential for UK gas prices, but we are bullish on coal, and the CO2 floor - introduced by the government from 2013 - will progressively raise costs.”

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