Drax reported a set of FY19 results which were in line with expectations. EBITDA increased by +64% to £410m and EPS tripled to 29.9p (5% higher than the consensus at 28.4p). The proposed dividend is in line with expectations (15.9p). The main contributor to this growth was the Production division (+52% in H2) on the back of a slight positive volume effect (pellet production was up by 4%) and a reduction in the costs of production by 3%.
Companies: Drax Group
Government bans on new fossil fueled vehicles in many major economies are likely to drive significant growth in electric vehicles (“EVs”) over the next twenty years. This will create growth in electricity demand from EV charging. The volume of energy to be supplied creates opportunities for both supply companies and generators and the provision of charge points is already creating a new industry. However, the timing of this demand puts pressure on local distribution infrastructure. While smart charging and vehicle to grid technology offer solutions, we believe these will only be partial given likely charging behaviour and as a result there will be demand for additional grid capacity and for other solutions. These other solutions include charger located storage and distributed generation.
Companies: CNA NG/ YU/ DRX GOOD RED SMS IKA AFC
The group published reassuring H1 figures with an encouraging Generation division and negative elements that should fade over time. Full-year EBITDA and net debt guidance remain unchanged, in the plausible scenario of a re-establishment of the Capacity Market in H2.
Drax reported a set of FY18 results broadly in line with estimates (<1% short). The group posted a 9% growth in adjusted EBITDA, translating the continued ramp-up of the wood pellet business as well as a resilient market share in the B2B supply division, which helped to offset an outage in Q1-18 and higher coal/carbon prices in the UK.
Drax released a mixed set of H1 results, marked by two unplanned outages in the generation business, partly offset by the positive performance of the US pellet and B2B supply divisions. The group confirmed its FY targets and expects to pay a £56m FY18 dividend.
• All divisions achieved improved earnings, finishing on the positive side.
• Substantial EBITDA improvement supports OCF and net debt levels above expectations.
• A £50m dividend payment (12.3p/share). Positive £50m share buy-back surprise.
The group published its half-year results showing a strong top-line as revenues increased by 21% to £1,800m and EBITDA rose 70% yoy to £120.8m, which was within expectations. However, higher depreciation expenses, losses on derivative contracts and a doubling of interest expenses have pushed the group to a net loss of £-16.8m. On an adjusted basis, net income fell by 47.3% to £8.9m, translating into an EPS of 2.2p/share which is below expectations.
The group maintained its full-year guidance for EBITDA to achieve £240m (already 50% achieved), although no information was given at the net income level, so that the market’s expectations of £42.2m seems difficult to be attained.
The group proposed an interim dividend payment of £20m, which represents 40% of the expected £50m full-year payment, translating into 4.9p/share and a payout ratio of 222% on adjusted net income.
Drax has published its FY16 results which are weak at the top-line level with revenues reaching £2.95bn (-4.7% yoy) and EBITDA reaching £140m, which is 2% below market expectations and represents -17.2% yoy mainly due to the removal of the renewable subsidies in the UK and lower power prices. However, a strong performance in the trading business and £177m of unrealised gains from derivative contracts have boosted the reported net income profit of the company to £194m, representing a 246% yoy increase. On an adjusted level, the profit of the group was £21m representing a 54.3% yoy contraction and an EPS of 5p, which is broadly in line with expectations, but below ours.
Net debt decreased by 50.2% yoy to £93m, ahead of forecasts, due to a strong cash flow performance (+29% yoy from operating activities) and an increase in cash reserves due to a £86m positive free cash flow.
The group has proposed a dividend payment of 2.5p per share (-56% yoy), which is at the consensus level and represents a 50% payout ratio. It expects a 2017 EBITDA in line with market expectations at £229m.
The company has decided to put the current dividend policy under review (50% payout ratio). No information is expected before H1 17 after consulting the shareholders.
Drax has published today its trading update in which it states that it expects earnings to be at the lower end of its guidance (£135-169m). It also includes the approval of the CfD contract for the third biomass unit by January 2017 with a strike price of £100/MW.
In addition, the group has provided a strategic update in which it mentions that it has completed two separate transactions, the first one being Opus Energy, a retail provider for the UK market with over 256k customers, for £340m, translating into a 10x EBITDA price. This would allow Drax to be within the top 7 suppliers in the UK (within the “big 6”).
The second acquisition is the purchase of four Open Cycle Gas Turbine (OCGT) plant projects with a total capacity of 1,200MW for only £18.5m, translating into a price of £14.5k/MW. These projects will be developed if they are backed by 15-year Capacity Market contracts.
Drax’s sharp drop in H1 EBITDA to £70m from £120m, while disappointing, was well flagged by management and signposted by commodity moves. Of far more interest, we believe, are the impending regulatory changes that will modify Drax’s earnings profile. The company expects to hear about state aid on contracts for difference (CFDs) this autumn. This will mark a continuation of Drax’s transformation from its historic earnings sensitivity to swings in electricity, coal and carbon prices to a more stable, regulated earnings profile. Provided the regimes introduced are profitable, we believe regulatory certainty and enhanced profitability will drive a stock
A difficult first half year for the company driven mainly by the Levy Exemption Certificates (LEC) removal, lower volumes sold and further pressure on commodity markets with EBITDA reaching £70m (-41.7% yoy) and adjusted net income falling 59% yoy to £17m, translating into an EPS of 4.2p. As a result, the dividend has been cut by the same amount to 2.1p, in line with the 50% payout ratio.
Weak results for the group, as revenues increased 9% yoy to £3,065m but margins contracted pushing EBITDA to a 26% yoy decrease, reaching £169m, falling 2% below expectations driven by the the removal of the LEC _(Levy Exemption Certificate)_ subsidy and decreasing power prices. The adjusted EPS decreased by 52% yoy to 11.3p and missed forecasts by 8% given also that there was top-line pressure as the group had higher depreciation expenses linked to the biomass investment. On a reported basis however, EPS reached 14p (-56% yoy), being better than expected due to one-off gains on derivative contracts to hedge on forex movements and lower prices.
Net debt doubled within a single year to reach £187m, which is 50% higher than forecasts as capex is above expectations, reaching £183m (although it decreased 10% yoy), despite an improvement in operating cash flows and a £134m cash position. The dividend proposed at 5.7p is in line with expectations and represents a 50% payout of the adjusted EPS.
Concerning guidance, the group has confirmed a challenging outlook for 2016 driven by the continued pressure on commodity prices and the loss of LEC subsidies. The group should concentrate on cash flows rather than earnings with additional cost cutting and capex measures expected.
Really good half-year results for the group. Revenues increased in all divisions, pushing sales up by 20% yoy to £1.51bn, beating estimates by 5.2% due to greater electricity generation output (+20% yoy) with a significant increase in biomass generation, increase in sales in retail (+22% yoy), and higher volumes delivered (+21% yoy). The improvement in revenues has pushed EBITDA upwards by 17% yoy to reach £119.9m, 14.7% better than market expectations with operating profit at £67.1m going up from only £4.5m a year ago. Bottom line, the group has passed into positive territory with £38.8m of net income (from a net loss of £6.7m), beating consensus estimates by 11.3%.
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Strix has released an AGM statement indicating that trading in the early part of the year has been solid, the new financing facilities have been put in place, product development is on track with 14 new products released during the year and the factory move remains on schedule and to budget. The current trading period is an important one and the scheduled trading update 23rd July should provide more colour on the underlying performance as well as the early indications from the new products already released and the outlook for those that are scheduled to be released in H2. The resilience of the Strix business has been reaffirmed during the current situation with financial guidance having been maintained and the final dividend committed to, a 10% increase yoy.
Companies: Strix Group
Despite some initial integration issues with WatBio (since resolved), Filta generated strong organic growth (+16% YoY) and delivered results in line with expectations. Given ongoing uncertainty around the pace at which self-isolation measures will be eased, we maintain our Hold rating, and will look to reinstate forecasts once visibility improves.
Companies: Filta Group
Last month’s update reported +15% LFL sales growth YTD (Feb & March) and also material margin improvement in areas that have received attention. Near-term uncertainty was however flagged, as Covid has impacted project fulfilment. In this context, today’s update is therefore encouraging, as LFL growth has continued through April – meaning +13% LFL sales growth YTD. April benefitted from service and install revenue (as well as recurring, ~£5m pa.). On this basis, CKT is therefore tracking considerably ahead of the company’s ‘bear case’ scenario. Looking ahead we are cautiously optimistic - as while revenue is set to decline in May - CKT mention “customer plans to resume installation projects”, particularly in Healthcare, where opportunities are described as strong. Timing and volume remain hard to predict however. Costs continue to be closely monitored and managed and as evidence, cash remains strong, at £12.8m – only marginally down from 31st March (£13.1m) and £14.3m as at January’s year-end. Prelims now expected 16th June.
TClarke's trading update is refreshingly positive in all key aspects of investors' current COVID fears and hopes. The decision to fully pay the 2019 final dividend sustains income attractiveness (4% yield on the final alone), the avoidance of trading losses in the teeth of the industry lockdown period (after a profitable Q1/20) demonstrates resilience whilst maintenance of net cash balances through April and May illustrate a robustness of cash flows despite reduced activity levels. It has also maintained the order book and has moved quickly to re-structure the cost base ensuring that margin recovery is not entirely dependant upon market improvement. Prudently and we believe reasonably, we are removing all forward forecasts until visibility on revenue recovery and productivity rates into H2/20 become clearer. However, TClarke's operational strengths, financial robustness and cash coverage of dividend in the most testing of circumstances gives us renewed confidence to uphold a Buy recommendation.
FY results ahead due to a waiver of the management bonuses and final dividend is proposed. Current trading is impacted by COVID but there are clear signs of improvement.
Judges Scientific, the group focused on acquiring and developing companies in the scientific instrument sector, has announced the acquisition of UK based ‘Health Scientific Ltd', a world leading maker, and global exporter, of calorimetry instruments. The initial cash consideration equates to £5.3m, with a further £2.0m cash earnout if profits hit £1.22m in 2020. The business generated £4.4m of revenue and an adjusted EBIT of £0.88m (20% EBIT margin) to April 2019, and is expected to have an even stronger year to April 2020, suggesting a ‘6x EBIT takeout multiple' if the earnout target is hit.
Companies: Judges Scientific
CAP-XX Ltd* (CPX.L, 3.1p/£10.1m) | Gfinity plc* (GFIN.L, 1.675p/£12.0m) | MTI Wireless Edge Ltd* (MWE.L, 38.5p/£33.8m) | Newmark Security plc* (NWT.L, 1.05p/£4.9m) | Mirada plc* (MIRA.L, 95.0p/£8.5m)
Companies: CPX GFIN MWE NWT MIRA
In the midst of a crisis, Judges has made what we think is an excellent acquisition in a high growth sector (lithium battery testing). Heath Scientific fits all of Judges’ acquisition criteria and is a business that is well known to management. We think that the current crisis may well throw up more opportunities and, with its strong balance sheet, Judges is well positioned to capitalise on this. FY20E EPS increased by 1.8% and FY21E by 3.2%. DCF based TP raised from 5245p to 5380p. CY21E PE 26.3x. Buy.
Gateley has issued a solid year end trading update despite inevitable COVID-19 related disruption in the last two months of the year (to 30th April). Revenue for the year will be not less than £108.0m (FY19: £103.5m). As anticipated, the breadth and depth of the Group’s legal and consulting service lines have underpinned a resilient outcome with the transition to remote working going smoothly. Swift action has been taken to mitigate the impact of the pandemic, whilst keeping teams intact to ensure the business is well equipped to take advantage of opportunities that arise as the UK economy moves into and out of recession. As we noted in our Stocks for Unprecedented Times note, Gateley has an exceptional track record, achieving revenue growth every year since 1986. This includes steady growth through the 2000-2001 recession, and a strong year for the business in 2010, demonstrating the Group’s resilience through the economic cycle. We remain of the view that Gateley will emerge strongly from the current crisis and expect to reintroduce forecasts as visibility improves later on in the year.
Trading has recovered from the initial hit from COVID-19, with improving B2B activity adding to strong B2C trends. Revenue has been better than previously expected at both DX Freight and DX Express, with this now running at 10-15% below normal levels for this time of the year, compared with the initial 33% impact at the commencement of the lockdown.
Companies: DX Group
Costain has raised £100m of gross proceeds. We reduce FY 20 and 21 FD EPS by 45% and 59% due to the dilution.
Companies: Costain Group
Symphony Environmental has reported FY December 2019 results. Whilst the Company did experience a single digit fall in revenues, this has been well trailed in previous announcements, relating to inventory adjustments by some customers waiting for legislative clarification in certain markets. The Company did move into loss making territory (£0.6m at the operating level), but the balance sheet was able to more than adequately absorb this aided by the £1.9m strategic equity investment announced in 2019. Net cash (excluding lease liabilities to compare on a like for like basis post IFRS 16) stood at £0.9m vs. net debt of £0.1m at the corresponding period end.
Companies: Symphony Environmental Technologies
The biggest takeaway from Sureserve Group’s interim result was its strong cash performance in the first half, with net debt falling to £3.5m at end March (£12.9m at end March 2018). This sets a solid base for the group to ride out the disruption of the lockdown. Our focus is on the outlook, with H1 only having eight days of impact from the lockdown. We have reduced our estimates for FY20, with the bulk of the revenue cut from £230m to £210m being a £13m cut in the Energy Services division. The cut to PBT from £9.8m to £9.1m is less severe, reflecting the improving efficiency in the Compliance division and the cost mitigation efforts of the group. With the long-term investment themes of regulatory compliance and energy efficiency likely to stay in focus, we see solid support for the group’s business and our FY21 numbers reflect the start of a bounce back in activity.
Companies: Sureserve Group
Filta Group (Filta) announced FY’19 results pretty much in line with our numbers. Adjusted EBITDA was £3.2m, vs. our £3.3m estimate, and revenue was £24.9m, vs. our £25.1m expectation. These figures confirmed that the integration of Watbio was back on track and the business was trading well until COVID-19 struck. Most of Filta’s customers are currently closed, but the company is optimistic that they will bounce back one distancing restrictions are lifted. We have removed our 2020 forecasts.
TP Group's FY19A results were in line with our expectations, with strong organic revenue growth of +16% YoY. Whilst the business remains resilient, with a large net cash position and a record order book, COVID-19 has caused uncertainty around the timing of some pipeline opportunities. Therefore, in line with a number of other companies, TP Group is withdrawing market guidance. We also withdraw our forecasts and place our recommendation Under Review.
Companies: TP Group