Don’t be too concerned about the hefty headline profit slide at
That modest slippage reflects the fact that the average price received for wholesale power fell from £55.6 per MWh to £51.3MWh in the period - neither was that fully offset by cheap US gas having meant lower European coal prices. Still, forward power sales for the year ahead have risen marginally to £51.9 per MWh and Drax saw net power output rise 2.7 per cent in 2012 to a record 27.1TWh.
Drax is also continuing with plans to convert from coal to renewable biomass energy. It expects to spend £650m-£700m on this, with the first unit converting to biomass in April this year followed by another in 2014's second half. In 2013 capital expenditure of £250m-£300m is anticipated, up from £224m last year. "What investors are increasingly owning is a very interesting long-term growth story in renewable power," said finance director Tony Quinlan. "Drax in the short-term is not for dividend hunters."
Deutsche Bank expects headline pre-tax profit of £129m for 2013, giving EPS of 28.01p.
|ORD PRICE:||630p||MARKET VALUE:||£2.5bn|
|TOUCH:||628-630p||12-MONTH HIGH:||639p||LOW: 390p|
|DIVIDEND YIELD:||4.0%||PE RATIO:||14|
|NET ASSET VALUE:||368p||NET CASH:||£311m|
|Year to 31 Dec||Turnover (£bn)||Pre-tax profit (£m)||Earnings per share (p)||Dividend per share (p)|
Ex-div: 24 Apr
Payment: 17 May
That costly conversion to biomass, while not without long-term promise, will hurt the dividend. While this April's introduction of the carbon price support mechanism is likely to erode coal power margins. So, after a decent share price run since end-December, scope for further near-term upside is hard to spot. Hold.
Last IC view: Hold, 472p, 31 July 2012