A slump in full year profits has led to shares in power plant operator Drax blowing a fuse.
The company, whose coal-fired power station in Yorkshire supplies 7% of Britain's electricity, said lower prices had contributed to a 64% drop in profits last year to £157.8m. An upbeat outlook - with contract prices for 2010 ahead of last year and more certainty about earnings - did little to enthuse investors, and the company is currently the biggest faller in the FTSE 250 mid-cap index, down 18.6p at 398.2p. Lakis Athanasiou at Evolution Securities said:
Drax has very good hedged positions for 2010 and 2011, but the fundamentals are weak. The forward dark green spreads are very low due to low gas prices (caused by global excess supply) and high coal prices (caused by strong Asian demand). Once free CO2 allowances go in 2013, EBITDA will fall below £100m on current forward curves. Drax can however gain additional EBITDA by using its flexibility as the most efficient UK coal plant. Nevertheless there is more downside risk to the share price than upside.
