The spiralling cost of the UK carbon tax wreaked havoc with Drax's (DRX) first-half numbers. Adjusted cash profits dropped 15 per cent to £102m as carbon tax costs more than trebled to £49m. Broker Whitman Howard is forecasting adjusted cash profits of £215m for the full year and EPS of 22.4p, down from £230m and 35.3p in 2013.
The group says carbon costs will continue to erode the margins it makes on coal generation. Thankfully, Drax has another iron in the fire. The group is converting its coal-fired units into lower-carbon biomass. Its first biomass unit has been running for just over a year and more than a fifth of the electricity that Drax generates now comes from biomass.
By 2016, Drax intends to have converted three of its six units to biomass, but management says plans beyond that depend on regulatory support. Chief executive Dorothy Thompson admits the current regulatory environment "does present uncertainties".
There are two key issues here. First, the UK government is trying to wriggle out of an earlier promise to give Drax's second biomass unit an enhanced subsidy regime. And second, it's not yet clear if government support for Drax contravenes European Union state aid rules.
| DRAX (DRX) | ||||
|---|---|---|---|---|
| ORD PRICE: | 687p | MARKET VALUE: | £2.8bn | |
| TOUCH: | 687p-688p | 12-MONTH HIGH: | 830p | LOW: 584p |
| DIVIDEND YIELD: | 2.0% | PE RATIO: | na | |
| NET ASSET VALUE: | 352p | NET DEBT: | 3% | |
| Half-year to 30 Jun | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2013 | 0.92 | 206 | 41.0 | 8.7 |
| 2014 | 1.26 | -11 | -2.0 | 4.7 |
| % change | +37 | - | - | -46 |
