Stock of the day 05/06/2015 – Drax Group PLC

Drax Group PLC will be hoping to imbue its stock with some much needed energy when it reveals its latest trading statement on Monday.

After starting 2014 at £7.81 Drax Group suffered a near 13% fall towards the end of April after the government rejected the company’s ‘Investment Contract’ for one of its biomass conversion units, taking the stock to £6.58. This followed the news in February that its full year statutory profits before tax had fallen 83% due to rising carbon costs. After recovering slightly it then saw another 8% at the start of August as the company lost a court ruling over the illegibility of one of its power-generating units for government contracts, sending its price back to £6.51.


(Source: IT-Finance.com 05/06/2015)

Changes to biomass subsidies schemes in the UK was yet another blow for Drax in December, sending the stock down by around 17% across the middle of that month to a low of £4.60. Its half year results in January was yet another direct hit, this time wiping 20% off the stick price to take it to a 2 year low of £3.56. Since then Drax has managed to maintain a rather limp trading bracket of between £3.50 and £4.30 for most of 2015; it is currently trading at £3.77 (05/06/2015, IT-Finance.com).

To try and combat many of the issues facing the company, Drax is in the midst of a £700 million restructuring project to replace its coal burning with wood pellets; a big move since it owners the largest coal-fired power station in Western Europe, located in Selby, a facility Drax intends to become the world’s largest renewable plant instead.

In slightly more positive news Drax’s Haven Power Ltd has signed a £520 million deal to supply Thames Water with clean energy; on top of this the deal has 2 5 year renewal options, the progress of which would push the value of the contract to £1.5 billion of a decade and a half.

However, Drax was the receiver of more bad news on Friday 5th June, as the Norwegian parliament announced that it was to sell of its $49 million stake in the company in a move away from coal investments. In amidst the continual stream of bad news, Drax Group has a consensus rating of ‘hold’ with an average target price of £4.44.

Friday’s stock news:

It’s been a bit of a rocky day for Vodafone; after announcing that is in having (long-rumoured) talks with Liberty Global, the stock initially spiked to £2.58. However, investors were expecting something along the lines of a merger, so the news that Vodafone is discussing an asset swap with the owner of Virgin Media was a bit of a disappointment, helping push the stock 2% lower to £2.43 as Friday continued.

It was a pretty dismal morning for Betfair, as Numis Securities gave the company a ‘sell’ rating, not due to any great fault with its business, but rather the fact that the analysts feel the stock is overpriced due to the amount of ‘competent competition’ at the top of the gambling sector. This led Betfair around 5% lower to £25.18.