Investors who have endured a steady decline in Drax’s (DRX) share price will have been pleasantly surprised by the energy generator's performance in 2017. Adjusted cash profits were up 64 per cent to £229m, net borrowings of £367m were lower than expected – more than £100m lower by some estimates. Analysts at JPMorgan Cazenove also noted that operating cash flow of £315m easily eclipsed its forecast of £232m.
The reason for the outperformance was largely down to the acquisition of Opus Energy, which completed in February last year, and the operation of a biomass unit under a subsidised 'contract for difference' arrangement. The strengthening contribution from the renewable segment wasn't reflected in statutory earnings, which moved firmly into negative territory due to non-cash charges on derivative contracts, primarily relating to foreign exchange.
Drax’s strategy for further growth depends to a large extent on taking advantage of the trend for decarbonisation of the energy system. It currently operates three biomass units and is working to develop a fourth. It is also looking into coal-to-gas repowering to expand its options for renewable generation. The acquisition of Opus Energy also gives it access to the business-to-business energy supply market, which has not been affected by concerns over pricing like the household sector.
Bloomberg puts the consensus forecast for adjusted EPS at 8.3p for 2018 (0.7p in 2017).
| DRAX (DRX) | ||||
| ORD PRICE: | 244p | MARKET VALUE: | £993m | |
| TOUCH: | 243.8-244.2p | 12-MONTH HIGH: | 369p | LOW: 218p |
| DIVIDEND YIELD: | 5.0% | PE RATIO: | NA | |
| NET ASSET VALUE: | 422p | NET DEBT: | 21% | |
| Year to 31 Dec | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2013 | 2.06 | 32 | 13.0 | 17.6 |
| 2014 | 2.81 | 166 | 32.0 | 11.9 |
| 2015 | 3.07 | 59 | 14.0 | 5.7 |
| 2016 | 2.95 | 197 | 47.7 | 2.5 |
| 2017 | 3.69 | -183 | -37.2 | 12.3 |
| % change | +25 | - | - | +392 |
| Ex-div: | 19 Apr | |||
| Payment: | 11 May |
