Rurelec (RUR)

Rurelec does exactly what its name suggests - it provides electricity to rural areas. The group floated on Aim in 2004 with the objectives of owning, operating and generating power in South America. And, today, Rurelec supplies about 40 per cent of Bolivia's power with both its interests - in Bolivia and Argentina - being cash generative and set to gain as both economies continue to grow strongly.

The acquisition of a controlling 50.1 per cent stake in Bolivia's Empressa Guaracachi plant in January 2006 - the largest power-producing and gas-consuming asset in the country - has further bolstered the group, with Guaracachi now generating 30 per cent of Boliva's power. The group is also working on a second Bolivian project - the development of a 120 mega watt (MW) greenfield plant in Yacuiba, a region of the country that's currently short on power and outside Bolivia's national transmission grid.

Meanwhile the group is in the process of completing a 60MW expansion of its Energia del Sur (EdS) plant in Argentina which currently generates 76MW, with more development plans in the pipeline. That said, operations in Argentina remain loss-making despite £4m in sales in 2007, although the Argentinian operations are expected to become profitable during this financial year. Future growth will come from both increasing power generation in existing plants, as well as new projects, as demand continues to significantly exceed supply. Management is also planning to branch into Chile next year.

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The group boasts strong green credentials, too. Rurelec's power stations use combined gas cycle turbines (CGCT) - this technology utilises a combination of natural gas and recycled thermal energy generated from the gas, and this gives Rurelec a big environmental advantage over its peers. Indeed, Rurelec has been granted its first batch of Certified Emission Reductions Certificates (CERs) under the United Nations Framework Convention on Climate Change. Last month, the group revealed it had been awarded 148,019 tonnes of CO2 reductions per year for its EdS CGCT plant, making Rurelec not only a power generator, but also a carbon credit generator.

Rurelec has locked in the price of these credits at a forward sale price of $20 (£10.1) per tonne with BNP Paribas for the duration of the Kyoto Protocol - its first commitment period ends in 2012. That will generate $2.96m a year for the group from the moment EDS's Comodoro Rivadavia plant enters full commercial production in August 2008, until 2012. And chief executive Peter Earl says the group is now expecting approvals and registration for 330,000 tonnes of CO2 reductions for its Bolivian plant later in the year. So, if this too is sold to BNP at the same rate, Rurelec will get a further $6.6m in revenue per year.

True, it may take a while for this to boost profits. And the slide in 2007's earnings certainly looks drastic - although this merely reflects the realisation of negative goodwill from the Guaracachi plant deal rather than the group's underlying performance. This goodwill arises from having acquired power generation capacity there at below the open market value. Still, investors can take comfort from the group's dividend policy. Mr Earl says Rurelec is committed to paying out a large portion of its distributable reserves as dividends, which was demonstrated with 2007's solid 2.5p a share pay-out - generating a yield of nearly 4 per cent.