27th Jul 2015 13:30
LONDON (Alliance News) - Societe Generale expects Drax Group to report lower earnings and to slash its dividend when its releases its half year results Tuesday and says the company's shares do not offer an attractive risk-reward scenario, resulting in its target price being downgraded.
SocGen analyst Ashley Thomas forecasts Drax will report earnings before interest, tax, depreciation and amortisation of around GBP90 million for the first half, which would be down from GBP102 million a year ago, whilst its earnings per share will fall to 6.8 pence from 9.4 pence.
As a result, Thomas expects its interim dividend to be slashed to 3.4 pence from 4.7 pence.
"Given the reduced level of cash generation, broadly net cash neutral in 2016 and 2017, we
expect the existing 50% dividend payout policy to be maintained versus the prior management?s
ambition to increase the dividend payout," says Thomas.
"Our target price has been reduced from 400p to 270p, but year-to-date Drax has been the worst-performing EuroStoxx 600 stock and now trades below our fair value target. We therefore upgrade our rating from Sell to Hold, although in the absence of greater regulatory clarity, we do not perceive the shares as currently offering a clearly attractive risk/reward scenario," says Thomas.
Drax shares were down 0.3% to 254.00 pence per share on Monday afternoon.
Thomas also lowers his Ebitda forecast for 2016 to GBP131 million from his previous estimate of GBP394 million due to weakness in power prices and coal spreads, as well as the lost revenue from the levy exemption certificate.
By Joshua Warner; [email protected]; @JoshAlliance
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