The market reacted positively to better-than-expected first-half results from Drax Group (DRX). Increased generation output, including a step up in the contribution from biomass sources, boosted sales and fed through to an 18 per cent hike in cash profits to £120m.
However, since the group is no longer exempt from paying the climate change levy following this year's budget, management does not expect this performance to continue into the second half of the year. Interim finance director Michael Scott says he expects the group to generate another £50m in cash profits during the second half. Subject to state aid funding, next year's performance could benefit once two US-based pellet production plants become fully operational and a third biomass unit comes on line.
Drax has converted two of its coal-fired generators into biomass burn under the renewable obligation (RO) subsidy framework and is awaiting European Commission state aid clearance in order to receive funding under the new 'contracts for difference' regulatory regime. Biomass accounted for 37 per cent of net power sales during the first half, compared with 23 per cent in 2014. This is because Drax received more funding under the RO as the volume of biomass generated grew by almost three-quarters.
Analysts at Whitman Howard have increased their adjusted full-year EPS forecast from 6.3p to 11.5p.
DRAX GROUP (DRX) | ||||
|---|---|---|---|---|
| ORD PRICE: | 283p | MARKET VALUE: | £1.15bn | |
| TOUCH: | 282-283p | 12-MONTH HIGH: | 741p | LOW: 246p |
| DIVIDEND YIELD: | 4.3% | PE RATIO: | 6 | |
| NET ASSET VALUE: | 380p | NET DEBT: | 3% | |
| Half-year to 30 June | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2014 | 1.26 | -10.8 | -2.0 | 4.7 |
| 2015 | 1.51 | 53.0 | 10.0 | 5.1 |
| % change | +20 | - | -600 | +9 |
Ex-div: 24 Sep Payment: 9 Oct | ||||
