Home » Uncategorized » Buy Drax Power (DRX) says VectorVest. All the key factors are in place for continued growth

Buy Drax Power (DRX) says VectorVest. All the key factors are in place for continued growth

VVUKlogoDrax Group Plc (DRX.L) through its subsidiaries, engages in the generation and sale of electricity in the United Kingdom. Based in Selby, it owns and operates Drax Power Station, a coal-fired power station in North Yorkshire. This power station has an output capacity of 4,000 megawatts. The company also sells by-products of the electricity generation process, such as ash and gypsum; and levy exemption certificates, renewables obligation certificates, and sulphur dioxide emissions allowances. It sells electricity generated through the electricity wholesale market.

In the run up to preliminary results in February, on December 6th 2016, Drax published a trading update, and announced a conditional agreement to acquire Opus Energy Group Ltd and four Open Cycle Gas Turbine development projects. CEO Dorothy Thompson said the company continued to expect full year EBITDA to be around the bottom of the range of current market forecasts, but added that the Opus acquisition marked “an important step in delivering our strategy, contributing to stronger, more predictable, long-term, financial performance, through greater diversification of the businesses, delivering more opportunities right across the markets in which we operate.”

The investment opportunity at DRX had been flagged up by the VectorVest system as the stock started to drift lower around 280p during November 2016. The stock appeared on a number of metric indicators, including Relative Value (RV) and Relative Timing (RT) metric tables. RV is an indicator of long-term price appreciation potential, and DRX has an RV of 1.32, which is very good on a scale of 0.00 to 2.00. RT is a fast, smart, accurate indicator of a stock’s price trend that shows DRX RT rating at 1.63 – excellent on a scale of 0.00 to 2.00. Several other metrics highlighted the opportunity at DRX at the same time, with Value (the measure of a stock’s current worth) highlighting DRX at 452.49p per share, and therefore undervalued at its current Price of 366.80p per share.

A weekly chart of DRX is shown below with the share price graphed in candlestick format. Since December 2014 the share has been charting a large inverted head and shoulders reversal. This reversal was confirmed by a breakout of the “neckline” of the pattern in the last trading week. The target from the head and shoulders reversal should take the share towards the 500 level.

Many chartists would argue that the head of the reversal pattern is also a rounding bottom or cup formation. If so, then the handle of the cup and handle formation has given a strong buy signal in the last trading week as the 52 week high was exceeded.

Of note is the poor Relative Safety metric on VectorVest. At less than 1 this shows that there have been surprises and missed targets in the past. The opportunity looks good but solid and unemotional risk management should be in place and strictly adhered to.

In pursuing further diversification across its portfolio of businesses, DRX is clearly striking a chord with investors and major shareholders. Even though the stock now trades at year highs, the key VectorVest indicators show that all the key factors are in place for continued growth. Buy.

Dr David Paul

December 28th 2016

Readers can examine trading opportunities on DRX and a host of other similar stocks for a single payment of £5.95. This gives access to the VectorVest Risk Free 5-week trial, where members enjoy unlimited access to VectorVest UK & U.S., plus VectorVest University for on-demand strategies and training. Link here to view.

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European Financial Publishing Limited T/A VectorVest UK (VectorVest) is authorised and regulated by the Financial Conduct Authority under register number 543038. You should remember that the value of investments and the income derived therefrom may fall as well as rise and you may not get back the amount that you invest. Past performance is not a reliable guide to the future. This material is directed only at persons in the UK and is not an offer or invitation to buy or sell securities. If investors are in any doubt of the suitability of an investment given their individual circumstances, they are recommended to contact an investment manager or independent financial adviser who may be able to provide tailored advice. Opinions expressed whether in general or both on the performance of individual securities and in a wider economic context represent the views of VectorVest at the time of preparation. They are subject to change and should not be interpreted as investment advice. VectorVest and connected companies, clients, directors, employees and other associates, may have a position in any security, or related financial instrument, issued by a company or organisation mentioned on this site. European Financial Publishing Limited is a company incorporated in Scotland under Company Number SC357322 with its registered address at Exchange Tower, 19 Canning Street, Edinburgh EH3 8EH. Email: support@VectorVest.com

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