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Drax's profits power up

Biomass generation was up 16 per cent, ahead of the company's exit from coal in 2021
July 30, 2020

Drax’s (DRAX) adjusted cash profits grew by close to a third to £179m in the first half, supported by £34m in payments following the re-establishment of the UK’s capacity market.

IC TIP: Buy at 273p

The group’s numbers were helped by its performance in the pellet production and generation divisions. In the former, adjusted cash profits more than tripled to £25m, thanks to a reduction in costs and a flattering comparable period in the first half last year due to difficult weather. Drax continues to target $64m in annual savings by 2022, $27m-worth of which it expects to deliver by the end of this year.

In generation, profits were up 45 per cent to £214m, as the division’s contracted position protected it from falling demand. This was enough to offset the decline in the company’s customer segment, where it registered a £37m loss. Management estimated that lower demand, triggered by coronavirus, cost the business £44m. 

Drax lowered its guidance for annual capital expenditure this year to £190m-£210m, down from a previous range of £230m-£250m, which the group said was due to project and biomass investment delays as a result of the pandemic.

Analysts at RBC forecast adjusted pre-tax profits of £149m and EPS of 33.6p in the 2020 full year, up from £137m and 29.9p in 2019. 

DRAX (DRX)    
ORD PRICE:273pMARKET VALUE:£1.08bn
TOUCH:272-273p12-MONTH HIGH:334pLOW: 126p
DIVIDEND YIELD:4.9%PE RATIO:NA
NET ASSET VALUE:452p*NET DEBT:46%**
Half-year to 30 JunTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20192.233.51.006.40
20202.22-60.7-14.006.80
% change-1--+6
Ex-div:20 Aug   
Payment:02 Oct   

*Includes intangible assets of £439.3m, or 110p a share

**Includes lease liabilities of £32.6m