The effects of carbon emissions regulation made themselves felt on half-year profits from electricity generator Drax (DRX), which produces 88 per cent of its electricity from coal. The North Yorkshire generator now has to buy all its carbon allowances in the market, forcing up the cost of credits from £38m in last year's first half to £70m. In addition, it spent £106m on capital account bringing biomass plants into service. Paradoxically, that came at a time when the so-called dark-green spreads - the price of power relative to the cost of coal - are being driven by low coal prices to their most attractive level in years. Even so, underlying net profits were down to just £70m, hence the savage cut in the dividend.
In order to turn itself into a generator fired mostly by biomass - ie, wooden pellets - Drax is due to spend £250m to £300m this year - around 50 per cent of the projected total - on commissioning biomass plants and securing supply lines. The project so far is not without its problems. For example, although the first converted plant started generating in April, the load factor was a relatively disappointing 57 per cent, compared with 78 per cent for the equivalent coal plant. The logistics for biomass are challenging as wood made into pellets has to be shipped from North America and transported in special rail freight cars and the lack of specialist infrastructure has held back output so far.
Deutsche Bank forecasts underlying pre-tax profits for 2013 of £108m, giving EPS of 24.1p (from £226m and 53.3p in 2012).
DRAX (DRX) | ||||
|---|---|---|---|---|
| ORD PRICE: | 647p | MARKET VALUE: | £2.6bn | |
| TOUCH: | 646-647p | 12-MONTH HIGH: | 664p | LOW: 457p |
| DIVIDEND YIELD: | 3% | PE RATIO: | 12 | |
| NET ASSET VALUE: | 391p | NET CASH: | £245m | |
| Half-year to 30 Jun | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2012 | 868 | 141 | 33.0 | 14.4 |
| 2013 | 919 | 206 | 41.0 | 8.7 |
| % change | +6 | +47 | +24 | -40 |
Ex-div: 25 Sep Payment: 11 Oct | ||||
