Outages at Drax’s (DRX) biomass facilities have taken centre stage in the group’s full-year results. Following a fire at a biomass rail unloading facility at the end of 2017, operations were restricted at two of the group’s biomass plants. This was followed by a generator outage in February. The disruption led cash profits to fall 16 per cent to £102m, but the group’s long-term transition towards renewable energy sources continues apace.
In spite of lost productivity, management expects to meet full-year cash profit expectations of around £250m. In addition, the group is frequently seen as a play on the rise of green power – hardly surprising given it already provides 11 per cent of the UK’s renewable energy (in spite of outages). This will only increase as it converts more of its coal plants for biomass generation. Its generators are supported by a 'contract for difference' regime providing an index-linked energy price until 2027, but RBC Capital Markets notes that as pellet production ramps up – 80 per cent higher in the period – and costs come down, the prospect of subsidy-free generation looks more likely.
The group still boasts a healthy dividend yield (see table), which combined with its low debt will keep some investors interested in spite of a 5 per cent drop in adjusted EPS forecasts in the past month. Bloomberg now expects 9.9p in 2018 (2017: 0.7p).
| DRAX (DRX) | ||||
| ORD PRICE: | 335p | MARKET VALUE: | £1.35bn | |
| TOUCH: | 334.6-335.2p | 12-MONTH HIGH: | 367p | LOW: 218p |
| DIVIDEND YIELD: | 3.9% | PE RATIO: | na | |
| NET ASSET VALUE: | 421p* | NET DEBT: | 22% | |
| Half-year to 30 Jun | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2017 (restated) | 1.80 | -104 | -21.0 | 4.9 |
| 2018 | 2.07 | -11.3 | -1.00 | 5.6 |
| % change | +15 | - | - | +14 |
| Ex-div: | 20 Sep | |||
| Payment: | 12 Oct | |||
| *Includes intangible assets of £395m, or 98p a share | ||||
