Drax (DRX) saw adjusted cash profits (Ebitda) leap by almost two-thirds to £410m in 2019, with £114m coming from the hydro and gas generation assets acquired from ScottishPower in 2018. However, new debt issued to help fund the acquisition did result in higher interest charges, pushing statutory pre-tax profit into the red.
The group plans to end commercial coal power generation at its last two units at Drax power station in March 2021, although both they will still be available to fulfil capacity market obligations until September 2022. Closing these operations is expected have a one-off cost of £25m-£35m, but will reduce annual operating costs by the same amount.
The rest of Drax power station has already been converted to burn wood pellets, but the question is whether biomass generation can be cost effective once government subsidies end in 2027. With plans to increase self-supply of wood pellets from 1.4m tonnes to 5m tonnes by 2027, Drax expects costs to fall from £75 per megawatt hour (MWh) to £50/MWh, the level at which it believes biomass is economical. Investment to increase wood pellet production will drive capital expenditure from £172m in 2019 to £230m-£250m this year.
Bloomberg consensus places adjusted EPS of 36.1p in 2020, up from 29.7p in 2019.
| DRAX (DRX) | ||||
| ORD PRICE: | 262p | MARKET VALUE: | £1bn | |
| TOUCH: | 262-263p | 12-MONTH HIGH: | 390p | LOW: 248p |
| DIVIDEND YIELD: | 6.1% | PE RATIO: | 2063 | |
| NET ASSET VALUE: | 432p* | NET DEBT: | 51%** |
| Year to 31 Dec | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2015 | 3.07 | 59 | 13.9 | 5.7 |
| 2016 | 2.95 | 197 | 47.7 | 2.5 |
| 2017 | 3.68 | -204 | -41.3 | 12.3 |
| 2018 | 4.23 | 14 | 5.0 | 14.1 |
| 2019 | 4.71 | -2.8 | 0.1 | 15.9 |
| % change | +11 | - | -98 | +13 |
| Ex Div: | 23 Apr | |||
| Payment: | 15 May | |||
| *Includes intangible assets of £455m, or 115p a share | ||||
| **Includes lease liabilities of £32.5m | ||||
