Drax, the coal-fired power station owner, is well on its way to becoming a biomass-fuelled generator.
The company plans to convert its first unit to biomass in April, with the second in 2014. Chief executive Dorothy Thompson said:
After ten years developing significant knowledge and experience in all aspects of using sustainable biomass in place of coal at our power station, we now have the mandate, means and expertise to transform the business into a predominantly biomass-fuelled generator.
With government support and our financing secured, both in the second half of 2012, we are on track to convert our first generating unit fully to biomass in April.
Meanwhile full year profits dropped from £338m to £190m, due to higher operating costs and investment in accelerating its biomass plans. Thompson said:
We will be investing significant amount of capital over [the next] two years, as we transform the business. [Earnings] in this period will be impacted adversely by the increasing costs of carbon. However as we move beyond this investment phase... we are confident we will deliver attractive returns for our shareholders.
Shares in the company have jumped 27.5p to 632p on the news, making it the biggest riser in the FTSE 250. Liberum Capital issued a buy note, saying the results looked good:
The first unit biomass conversion will be completed in April. Storage and handling construction also on track. Outlook very much focused on execution.
But Angelos Anastasiou at Cantor Fitzgerald said:
These results are slightly, but not significantly, better than expected. Drax is progressing with its revised biomass plans. However, we believe that the plans are not risk free, and the group remains exposed to carbon costs even after the planned unit conversions. Hence, we reiterate our sell recommendation and our target price of 523p.
