Climate Exchange, the carbon emissions exchange operator, has pleased the market with better than expected full year profits.
The company, whose marketplaces include the European Climate Exchange and the Chicago Climate Futures Exchange, said pre-tax profits had climbed from £2.8m to £6.8m, helped by a jump in trading volumes. Chairman Richard Sandor said:
Some political momentum is returning with China and India announcing post Copenhagen reduction targets in the last few days. Overall we have maintained our position as the leading emissions trading exchange.
The company's shares have climbed 41.25p to 515.5p on the news. But analysts at KBC Peel Hunt maintained their sell rating, although with a wide target price range (which is under review.) The broker said:
The share price has captured some of the uncertainty of carbon markets. Climate Exchange offers good option value (note that ICE bought 5% at 650p last year and could return) but there is still downside risk to earnings/valuation.
2009 pretax profit has been reported at £6.8m, above expectations, versus £2.8m the year earlier. We had downgraded our forecast to £6m (from £11m) in December to reflect disappointing US volumes and prices. Net cash of £19.2m is supportive.
[In the US] regional initiatives to combat greenhouse gas continue (Colorado recently committed to 30% renewable energy by 2020), and Climate Exchange has benefited well from new markets. While the US has encouragingly signed up to the Copenhagen Accord, it now looks highly unlikely that national cap-and-trade [emissions trading] legislation will be passed this year and is generally in question.
With US cap-and-trade at some point, we see fair value at 800p a share. Without US cap-and-trade, but with a healthy EU market, we see fair value at 540p a share. A pessimistic scenario for the EU would put fair value at 350p a share.
