Article

Drax: a key role to play in a low carbon future

28 April 2021
Martin Walker, Head of UK Equities, Henley-on-Thames
Martin Walker
Co-Head of UK and European Equities
Drax: a key role to play in a low carbon future

Drax is a company that is truly “walking the walk” of clean energy transition: from pariah of coal-fired carbon emission, to messiah of bio-mass power generation and carbon capture and storage.

The Invesco UK Equities team’s investment process long ago identified the potential opportunity in radical plans to transform the Drax business. Subsequent detailed fundamental research involving  modelling, meetings with the management and the Board, and analysis of complex ESG issues has supported the investment case, and valuations in our view look attractive.

In the competition for Capital – for a place in portfolios – we believe that Drax is able to offer:

  • An attractive dividend yield, ahead of overall market yields
  • Reasonable capital stability – even in our most adverse business scenario, the downside-risk to valuation is not in our view excessive
  • An almost “free” option for potentially very substantial upside capital growth, in the event that an exciting opportunity to deliver one of the world’s first at-scale carbon negative electricity generation projects comes to full fruition.

As noted in our recent publication on the Energy sector “Oil Wells, that End Well”, we continue to invest in companies who each have important roles to play in energy transition. And Drax is one of them.

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