Coal mine methane may not be the future of power generation, but Alkane Energy (ALK) is making a good stab at ensuring it is at the front of the queue to plug any shortfall in grid power. During the six months to June, the company increased its power output by 25 per cent, and was awarded 101 megawatts of capacity supply contracts from October 2018.
However, in May Ofgem launched an investigation into whether Alkane broke the rules in a previous capacity mechanism auction. Predictably, the company does not believe it has done anything wrong, but analysts reckon the shares are unlikely to find traction until the probe is resolved.
Meanwhile, a fall in global commodity prices has put added pressure on wholesale energy prices, which currently sit at £44/megawatt hour (MWh). This means that despite forward-selling 56 per cent of its expected output at £50/MWh for 2016, Alkane must cut costs to maintain margins. But management is confident that the tightening of spare grid supply to just 5 per cent, as well as further decommissioning of coal-powered capacity, will play into the hands of its high-margin power generation division.
Analysts at Liberum are forecasting adjusted full-year pre-tax profit of £5.4m and EPS of 3.7p, up from £3.3m and 2.4p, respectively, in 2014.
ALKANE ENERGY (ALK) | ||||
|---|---|---|---|---|
| ORD PRICE: | 24p | MARKET VALUE: | £39.4m | |
| TOUCH: | 23.5-25p | 12-MONTH HIGH: | 41p | LOW: 20p |
| DIVIDEND YIELD: | 1.2% | PE RATIO: | na | |
| NET ASSET VALUE: | 29p | NET DEBT: | 41% | |
| Half-year to 30 Jun | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2014* | 7.1 | 7.3 | 5.85 | nil |
| 2015 | 8.7 | 1.4 | 0.94 | nil |
| % change | +23 | -81 | -84 | - |
*2014 includes profit on transfer of shale gas licenses to Egdon Resources for £10m | ||||
