Citi downgraded its stance on Drax on Thursday to ‘neutral’ from ‘buy’ as it said the stock’s risk/reward scenario was now less attractive following its 50% share price rise over the last six months.
“In our view, the risk/reward balance has become less attractive following the re-rating of the stock, with the shares now pricing in the current high commodity prices into perpetuity and circa 70% probability of £3.0bn value-creative investment as outlined in the capital markets day,” Citi said.
The bank, which has a 651.0p target price on the stock, said the key risk to the shares is a normalisation to UK power prices after this winter and a less lucrative remuneration structure for both BECCs (bioenergy carbon capture and storage) and pump storage extension, neither of which can be excluded as a potential risk.
“While sentiment could continue to support what’s perceived as a green growth stock, especially with upward moving consensus forecasts for the near term, we do not fundamentally see biomass as a sustainable source of energy, nor see current high commodity prices to be a sustainable one,” it said.
Analysts at Berenberg lowered their target price on low-cost carrier EasyJet from 800.0p to 750.0p on Thursday to account for weaker near-term performance as it braces for “a cold winter ahead”.
Berenberg said EasyJet was finishing the financial year as expected but noted that all eyes were now firmly back on Covid-19 as a result of the newly emerged Omicron variant.
The German bank stated that EasyJet had pre-released its 2021 full-year results back in early October, meaning no major surprises were found within its full-year numbers.
However, Berenberg highlighted that the discovery of the Omicron variant just days before the release of its results had “unsurprisingly” affected sentiment over the past week.
Berenberg, which also reiterated its ‘buy’ rating on the stock, added that while a “harsh winter” may cause problems for some carriers, its analysts added that early indications for summer 2022 were promising, with EasyJet likely to “benefit disproportionately” from cuts at Alitalia and Norwegian.
JP Morgan put Berkeley Group on ‘positive catalyst watch’ and told investors to expect the housebuilder to increase guidance at its first-half results.
Recent data has shown an improvement in the London property market, where Berkeley operates, JP Morgan said. Interim pretax profit is likely to be £20.0m better than guidance of £260.0m when Berkeley reports on 8 December, the bank predicted.
JP Morgan predicted adjusted annual pretax profit of £545.0m – 3% more than consensus. The bank kept its ‘overweight’ rating on Berkeley shares and trimmed its target price to £55.0 each from £58.48.
“We expect a beat and raise from Berkeley next week. In this context and with the stock trading on an attractive valuation, we place Berkeley Group on positive catalyst watch,” JP Morgan analyst Rajesh Patki wrote in a note to clients.
