Drax, the owner of the largest coal fired power station in Europe, outlined its plans for full biomass conversion alongside half-year results which showed cash profits down from £190m, to £154m due to tighter spreads between coal and power prices. And the prospect of a bumpy ride during the conversion process means the shares are best avoided by all but the most serious income hunters.
Drax's biomass conversion plans come after the government removed support for coal co-firing when it announced its revised Renewable Obligation Certificates – or ROCs – regime last week. Tony Quinlan, finance director, said Drax will accelerate plans to convert half of its six generators to biomass over the next five years, with the first conversion due to be completed within 12 months. Costs associated with biomass conversion were £15m more than expected, with a further £5m expected in the second half, alongside £70m spent on infrastructure. Full-year capital cost guidance is £200m.
A £100m loan to invest in biomass is supported by a strong balance sheet with £233m in cash. Haven Power the retail business suffered from hefty increases in grid charges, with losses rising from £1m to £3m.
Deutsche Bank forecasts full-year adjusted pre-tax profits of £219m, giving EPS of 45.94p (2010: £249m/55.07p).
DRAX (DRX) | ||||
|---|---|---|---|---|
| ORD PRICE: | 472p | MARKET VALUE: | £1.7bn | |
| TOUCH: | 471-472p | 12-MONTH HIGH: | 589p | LOW: 390p |
| DIVIDEND YIELD: | 5.6% | PE RATIO: | 7 | |
| NET ASSET VALUE: | 376p | NET CASH: | £233m | |
| Half-year to 30 Jun | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2011 | 866 | 169 | 91.0 | 16.0 |
| 2012 | 868 | 141 | 33.0 | 14.4 |
| % change | - | - | - | - |
Ex-div: 26 Sep Payment: 12 Oct | ||||
