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I’m sure they don’t Effix. Nor would I, but suppose you could if you were that way inclined. What do you suppose the institutions base their investments on? The future of electricity?
My point is that the institutions don’t buy or sell on seasonality. No matter if that’s Drax or another ftse250 company. Unless your definition of institutions are hedgies.
Effix, my whole paragraph was meant to tongue in cheek, sarcastic! But as you don’t seem to get that, I do believe DRX decisions are based on that, if you agree that electricity supply is seasonal and demand increases in the winter then investment decisions can be made on that! Show me a FTSE 250 company that isn’t owned by institutions, what’s your point?
Drax is mostly owned by the institutions. Do you really believe their investment decisions depend on lights going out in winter? -)
Me too, DRX always goes down in summer when everyone forgets that we need electricity, then when the lights go out in winter everyone realises that DRX is a major contributor to the the grid. That’s like asking if electricity has a future? Doh!
Does anybody still believe this stock has any future?
such weak op margins, on my radar
I keep thinking it's going to take off....and then it reigns itself back in. (In at 302.)
That is true and it is what has caused the drop. There is a strong possibility that the capacity market payments will be restored this year or possible 2020 but it is never a dead cert.
Overall if it was not re-instated it would be a blow to DRAX but not fatal. They have been making good progress.
There is a thinly veiled warning by the company. Investors should take heed that the consensus EBITDA of £410m for 2019 is subject to restoration of the capacity market an£ payments. That is £68m.
With a £36m boost from the hydro and gas assets acquired from ScottishPower last year, Drax (DRX) saw its adjusted operating profit surge by 35 per cent to £138m in the first half of 2019. In addition to the gains from this renewables portfolio, the power generation division saw the so-called ‘value from flexibility’ increase by 92 per cent to £69m, more than offsetting weakness elsewhere.
As adverse US weather dampened volumes, adjusted cash profits in pellet production declined by a fifth to £8m. Meanwhile, the customers' segment saw adjusted cash profits plunge by 44 per cent to £9m on the back of restructuring costs and warm weather depressing energy volumes sold by 12 per cent.
Reflecting £692m in acquisition costs, net debt jumped from £366m to £924m. But the group expects to achieve a ratio of net debt to adjusted cash profits of two times by the end of 2019 if the suspension on the capacity market (government payments to ensure reliable energy capacity) is lifted. If this were to happen this year, as RBC Capital Markets anticipates, an additional £68m of income would be recognised for 2019. Cash generation remains strong with net cash from operating activities rising by over 75 per cent to £197m.
Investec anticipates adjusted pre-tax profit of £127m and EPS of 27p for the full year, rising to £161m and 33.5p in 2020.
An end to the uncertainty surrounding the capacity market would be a welcome boost. Aside from this, Drax will benefit from long-term trends such as the UK's ambition to reach net zero carbon emissions by 2050. Offering a lower entry point, buy.
Significant news - 24/07/2019
The group published reassuring H1 figures with an encouraging Generation division and negative elements that should fade over time. Full-year EBITDA and net debt guidance remain unchanged, in the plausible scenario of a reestablishment of the Capacity Market in H2.
• Adjusted EBITDA up 35% to £138m
• Net cash from operating activities
• Net debt was £924m, on track to reach the debt ratio target of 2x by yearend
Generation, 90% of EBITDA
After a weak H1 18, Generation’s EBITDA increased by 68% to £148m, backed by higher electricity sales (+40% to £607m) and by the contribution of hydro and gas assets acquired from Scottish Power (+£36m at the EBITDA level). The group confirms its intention to cease coal generation by 2025 and sees pumped storage power station as a strategic asset to replace its function as a supply and demand balancer, in a context where the UK is aiming for carbon neutrality by 2050.
Pellet Production, 5% of EBITDA
The EBITDA generated from pellet production in the US decreased by £2m to £8m after lower production due to weather conditions which restricted the level of harvesting of commercial forests. EBITDA should be back to the long-term average in H2.
Customers, 5% of EBITDA
Customers’ EBITDA decreased by 43% to £9m, due to the lower level of energy sold, reflecting a mild winter plus the increased operating costs associated with the integration of the next generation system. Looking forward, EBITDA for the
division should rise thanks to the increasing number of customer meters and gross profit per MWh.
The group confirmed its target to reach a net debt/EBITDA ratio of 2x by the yearend, assuming the reinstatement of the capacity market, or during 2020 otherwise.
We will adjust our model, which should lead to only a moderate change in our target price, confirming our long-term Buy recommendation.
Well done on your short HP. You are truly an amazing trader.
I've just done my first top up at same level as your short closing and will add on further drops.
I like the idea of green energy though I do note that the burning of wood does produce higher amounts of Co2 than coal, but wood is sustainable and added to this the possibility of carbon capture plant, puts drax in a very unique position.
Cheers for the link mattw007.
Just closed my shorts @263p. Looks well and truly beaten to me now.
Anybody knows what’s going on here? Any impending profit warning on the horizon, dividend cut or what?
and responds to Government's Net Zero pledge...
and features on BBC World Service programme about Carbon Capture...
In an example of a rich irony Drax’s shareholders must be wishing if only Drax was a distribution business under the threat of a renationalization. Every other company’s shareholders are dead scared of being potentially paid on the basis of book value. For poor souls holding Drax sharex however that would be like hitting a jackpot -)
HP seems to be right. There may be some merit in Drax's business model but there's no love lost between the compoany and the investor community. It's been a merciless shellacking over the last 2 months. In HP's words "it's dropping like a stone". It's anybody's guess where the bottom is. It may well dip decisively below 300p. I still remember Feb last year when the share price was just a whisker from starting having "1" in front.
National Grid (NG.), Drax (DRX) and Equinor (EQNR), have announced a new “zero-carbon UK partnership” exploring how a large-scale carbon capture, usage and storage network and hydrogen production facility could be constructed in the Humber region in the mid-2020s. A pilot project at the Drax power station in North Yorkshire already captures a tonne of carbon dioxide a day – scaled up it could become the world’s first “carbon-negative” power station, potentially capturing millions of tonnes of carbon each year from nearby industrial emitters. The project could also serve as a launch pad for wider decarbonisation in the UK as it targets a “net-zero carbon economy”.
Now that is a much better post HeavyPolluter. Much more balanced giving some positives as well as outlining negatives giving investors a little more knowledge. Well done.
I do believe demand from biomass industry helps to maintain sustainable forests but I also know that burning biomass emits more CO2 than equivalent amount of coal, not even mention particulate matter emissions.
I'm also aware that we cannot rely just on intermittent renewables and that with higher penetration of wind and solar in generation mix the value of back-up power and dispatchability rises. CCS technology application is years away but is definitely a must if we all want to have greener future.
All said above notwithstanding, there's clearly no love of Drax amongst investment community and the attitude hardly changes. Its reliance for close to 3/4 of its revenues on government subsidies doesn't help and Drax still needs to show they'll be able to do without once the "government financing" stops in approx. 8 years. Having Gardiner as CEO doesn't help either I guess. He's demeanour is that of an grim undertaker. Cannot see him being able to fan the flames of passion for 'Drax story' at all.
Typical response from someone who doesn't understand forestry.
If these managed, working forests were not selling thinnings, residue, diseased trees to the the Biomass industry and only had the construction industry to rely on (Biomass is filling the hole left by the decline of the pulp industry), many of these forests would no longer be run for economic use. Old forests absorb far less CO2 than sustainably managed ones.
That's not even factoring in the potential Climate Change reversing benefits of CCUS (admittedly this will require substantial investment, but who in this country is best placed to be at the forefront of this?)
See all the articles about that here:
Face it, we cannot rely on Wind and Solar alone. Batteries are decades away from being economic on an industrial scale and Drax is positioning itself as the company of choice to the Grid for flexible, dispatchable generation.
Good luck with your short.