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Drax awaits biomass facts

RESULTS: Electricity generator Drax's profits are up - but the group's decision to switch to biomass has suffered glitches
August 3, 2010

Coal-based electricity generator Drax's decision to hedge the price of power sales at higher margins than in 2009 helped cash profits rise 23 per cent year on year to £184m, after adjusting for last year's hefty derivative contract losses. At the same time, reflecting the unusually cold weather, revenue growth was also strong.

391p

Management pointed to robust gas prices, too, helped by lower liquefied natural gas supply - which helped push power prices higher. However, chief executive Dorothy Thompson conceded that it's "too early to tell" if that favourable forward curve will prove sustainable in the longer term. The group's investment in biomass looks equally uncertain, despite having the largest co-firing facility in the world - contributing 12.5 per cent of the group's generating output. That's because plans worth £2bn to build three 100 per cent biomass plants have hit regulatory snags, delaying the date of publication of the investment case. What's more, proposals to convert a unit of the plant to 100 per cent biomass are also waiting on government decisions to align the green-fuel's subsidies with those of wind.

But the new dividend policy, to distribute 50 per cent of profits, has been initiated and Evolution Securities expects full-year EPS of 61.5p (55.4p in 2009).

DRAX (DRX)

ORD PRICE:391pMARKET VALUE:£1.43bn
TOUCH:390-391p12-MONTH HIGH:497pLOW: 322p
DIVIDEND YIELD:6.1%PE RATIO:8
NET ASSET VALUE: 264pNET CASH:£71m

Half-year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
200970733.874.1
20107811322614.1
% change+10+291+271+244

Ex-div: 29 Sep

Payment: 15 Oct