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One-offs chip away at Drax

The decline of coal as a power source has accelerated the biomass company's
July 24, 2017

Coal is on the way out, or at least it might be. The government’s consultation on stopping coal generation by 2025 closed in February, and while the conclusions have yet to be published, the shortened useful life expected for the energy source have driven Drax’s (DRX) depreciation and amortisation charges to £90m for the first six months of 2017, from £49m in the same period of 2016. This combined with acquisition costs and £65m in FX hedging losses (Drax buys fuel in dollars, and sells energy in sterling) pushed underlying earnings per share down 48 per cent to 2.2p.

IC TIP: Hold at 318p

The group is now looking at alternative uses for its coal units, running a trial to assess the feasibility of co-firing with biomass, and developing a proposal on converting one or more units to gas.

Drax also attempted to take advantage of the rise of challenger energy companies with the acquisitions of business suppliers Opus Energy and Haven Power. Haven focuses on the larger end of the SME market, but also supplies the industrial and commercial businesses. The deals contributed to a jump in net debt to £372m, from £85m at the end of June 2016.

Analysts at Investec expect statutory net asset value per share of 511p at the 2017 year-end.

DRAX (DRX)    
ORD PRICE:318pMARKET VALUE:£1.29bn
TOUCH:317.8-318p12-MONTH HIGH:393pLOW: 318p
DIVIDEND YIELD:1.7%PE RATIO:

na

NET ASSET VALUE:460p*NET DEBT:

20%

Half-year to 30 JunTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20161.49184.236.62.1
20171.80-82.7-16.84.9
% change+21-145-146+133
Ex-div:21 Sep   
Payment:06 Oct   

*Includes intangible assets of £396m, or 97p a share