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Electricity prices for consumers may be rising, but that's not been enough to offset the impact of a 90 per cent rise in coal prices upon Drax Group. The 13 per cent slump in full-year earnings at the UK's largest coal-fired electricity generator was expected, but the abrupt departure of finance director Gordon Boyd - leaving to 'pursue other opportunities' - was not. That, plus fading hopes of a Centrica-led takeover, resulted in an 8 per cent share price slide on the day.
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In December, Mr Boyd decided not to proceed with a £405m refinancing plan due to volatility in the credit markets. He said the company is now "waiting for conditions to improve" before going ahead.
Dorothy Thompson, chief executive, blamed a 6 per cent fall in gross margins on "a hard year, and the overhang of a warm winter". But coal prices aren't the only problem. Analysts were also spooked by a potential change in tax law relating to "disguised interest", which broker Pali International thinks could close a loophole currently worth £23m a year. The full removal of this benefit would result in Pali downgrading its 2008 EPS to 69p from 76.5p, and it has placed its target share price of 652p under review.
| DRAX GROUP (DRX) | ||||
|---|---|---|---|---|
| ORD PRICE: | 528p | MARKET VALUE: | £1,805.6m | |
| TOUCH: | 527-529p | 12-MONTH HIGH: | 833p | LOW: 462p |
| DIVIDEND YIELD: | 2.8% | PE RATIO: | 5 | |
| NET ASSET VALUE: | 106p | NET DEBT: | 93% | |
| Year to 31 Dec | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2004 | 0.62 | -42.0 | -2 | nil |
| 2005 | 0.93 | 264.0 | 108 | nil |
| 2006 | 1.39 | 634.0 | 116 | 13.1 |
| 2007* | 1.25 | 449.0 | 99 | 14.6 |
| % change | -10 | -29 | -15 | +11 |
Ex-div: 16 Apr Payment: 7 May *Excludes special dividend of 7.8p per share |
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The risks of rising coal prices and heavy carbon emissions are already in the price. But until the financial situation becomes clearer, the shares remain fairly priced.
Last IC View: Fairly priced, 693p, 13 Nov 2007.
For more analysis of company results as they are released, see: www.investorschronicle.co.uk/results
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