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Drax continues to pay the price of change

The North Yorkshire power generator has been hit by challenging commodity markets and changes to climate change regulations
February 16, 2017

The share price of Drax (DRX) came under pressure following the release of full-year figures that delivered a 17 per cent drop in cash profit and a final dividend constricted by a sharp fall in underlying earnings. Management pointed to challenging commodity markets and previously flagged changes to climate change regulations, specifically that renewable energy sources, including the power from biomass utilised by Drax, would no longer be exempt from the Climate Change Levy.

IC TIP: Hold at 370p

Drax had warned in December that profitability would fall at the lower end of expectations - so today's numbers were actually in line with guidance. And it should be remembered that the power group, which operates the eponymous generating station in North Yorkshire, remains in a transitional phase.

A declining proportion of earnings are dependent on commodity spreads, with a third of biomass generation now supported under the government's contract for difference subsidy scheme. Electrical output from the generation business was down a quarter on the previous year as the group's coal-fired units were out of merit for most of the summer, but Drax now generates 65 per cent of its power from biomass, up from 43 per cent the year before - that expansion programme was also completed on budget.

DRAX (DRX)
ORD PRICE:370pMARKET VALUE:£1.51bn
TOUCH:368p-370p12-MONTH HIGH:393pLOW: 222p
DIVIDEND YIELD:0.7%PE RATIO:8
NET ASSET VALUE:503pNET DEBT:5%

Year to 31 DecTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20121.7819044.025.3
20132.0631.813.017.6
20142.8116632.011.9
20153.0759.014.05.7
20162.9519748.02.5
% change-4+234+243-56

Ex-div: 20 Apr

Payment: 12 May