We believe Drax contains significant share price upside potential. We increase our PT by 75% to 960p, implying 120% upside potential: Since our last update (May 2020) we see notable improvements to the Drax investment story but little change to the share price. We believe the current price is an attractive entry point.
The next Orsted? We now value the NPV of BECCS, pellet and pumped hydro expansion at £575mn (145p/share), which was previously £50mn. BECCS to us has the feel of offshore wind in 2005 – marginal current economics and a large niche area but with significant potential. We see Drax becoming a global leader in developing and operating these complex BECCS projects both in the UK and globally, and we estimate a long-term upside scenario valuation of 3800p, or 8.8x the current share price.
Option 1: Power price 'bubble' will increasingly lead to material earnings and cash upgrades. Drax is c.30TWh hedged over the next three years, but there is 3TWh of unhedged output in 2022 (20% of total output) and 6TWh in 2023 (40%). The correlation between power prices, bark spread and the Drax share price has broken since Drax joined the S&P global clean index (May 2021), and we believe it should reconnect. Every £5/MWh power price change is c.£500mn NPV to Drax, in our view.
Option 2: Pellets. Drax's ambition is to self-supply 5mn tonnes, and we estimate further export is possible. 3mn tonnes expansion would equal an NPV of £800mn, all else equal.
Option 3: BECCS. A global emissions technology game changer. We estimate that BECCS could have a value of up to £10bn NPV. The first unit may be operational by 2027, but we see significant potential for further UK and global expansion.
Option 4: Pumped hydro. Drax is planning to invest £500mn to increase capacity by 600MW. We estimate this would provide a further c.£70mn EBITDA and £320mn NPV.
One crucial point which a couple of people have made, but is worth repeating is that SNG001 is ideal for stockpiling and Govts around the world are pumping sh#tloads into pandemic planning for the next one.
MAbs will be useless for that. What's needed is a broad spectrum antiviral that can be stored in refrigerators for 3 years or deep freeze for 5.
Can you think of anything that fits that criteria?
I guess you could argue too that it's not market sensitive? Would that really move the share price? For smaller companies a last dosing RNS might move the dial and I acknowledge that they have done that previously and probably will for the global Phase 3 trials, but what people really want to know is has it progressed to p3?
Ballsy trading this atm. I would hate to think you'd miss out from doing some day trading.
Having said that, I've done that on occasion too and am (probably!) up slightly. I was desperate to get to a nice round number, but have run out of spare cash and don't want to risk losing out big time when it all kicks off.
RE: Mask or Not to Mask That Is The Question?05 Jul 2021 09:22
Andy - You're absolutely right.
If the Govt implemented a law which said you must cross the road with your eyes open, there would be a number of people who suddenly started whinging that they like to cross the road with their eyes shut and it's an infringement of their personal liberty to ask them to cross the road with their eyes open.
Crossing the road with your eyes open is not 100% guaranteed to be safe and you're not guaranteed to die if you close your eyes (you can still use your ears and drivers will still be using their eyes), but it doesn't mean it's the sensible thing to do.
What I can tell you is that you're better off ignoring bell ends like NewbieRookie, as it will be better for your health and sanity!
They haven't even done a Phase 2 yet. They are claiming their treatment is superior (evidence please!) despite not having anything to show for it and then say we'll be more expensive - yet the treatment price they quote is the same as what we believe ours will be.
Anyone from the Bromsgrove area who fancies writing their MP?
You can say:
- Congrats on the new role - Therapeutics was sadly largely ignored by the previous incumbent - Therapeutics taskforce too little, too late - and too narrowly focused on 'a magic pill' - There's a ready made solution sitting on your doorstep - Would be great to demonstrate that another British company has successfully led the way in the fight against Covid and that it has had the support of the British Govt. - And the usual plus points for SNG: Broad spectrum antiviral; can be applied at home or in the hospital setting; effective against variants etc