Pre-tax profits crashed at coal-fired power generator Drax as cheap and plentiful gas supply drove down power prices, but developing world demand kept coal prices high. That was exacerbated by a 3 per cent reduction in electricity demand, although the group did manage to cut underlying costs by £14m.
However, Drax has mitigated this issue for 2010 by hedging forward sales contracts at higher average margins than 2009, aided by a new agreement with Centrica to provide 300 megawatts of power up to September 2015. It also pointed to the acquisition of Haven Power, which finance director Tony Quinlan said offered a "route to more liquidity in the industrial and commercial market as well as the potential for growth", even though the small business electricity supply company currently only breaks-even.
Drax's also made progress with its plans to go greener, crucial at a time when the UK government is seeking security of supply and reduced carbon emissions. Four turbines were upgraded in 2009 and the group's planned joint venture with Siemens to build, own and run three biomass plants is "progressing", with investment decisions to be made by the end of the year. And after a £106m equity placing and £235m debt refinancing, Drax has a much healthier capital base from which to invest.
Broker Evolution Securities expects full-year 2010 EPS of 60.8p (from 54.4p in 2009).
DRAX GROUP (DRX) | ||||
|---|---|---|---|---|
| ORD PRICE: | 409p | MARKET VALUE: | £1.49bn | |
| TOUCH: | 409-410p | 12-MONTH HIGH: | 560p | LOW: 391p |
| DIVIDEND YIELD: | 3.3% | PE RATIO: | 13 | |
| NET ASSET VALUE: | 281p | NET DEBT: | 5% | |
| Year to 31 Dec | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2005 | 0.93 | 264 | 108 | nil |
| 2006 | 1.39 | 634 | 116 | 13.1 |
| 2007 | 1.25 | 449 | 99 | 14.6 |
| 2008 | 1.75 | 443 | 98 | 43.3 |
| 2009 | 1.48 | 158 | 31 | 13.7 |
| % change | -16 | -64 | -68 | -68 |
Ex-div: 28 Apr Payment: 14 May | ||||
