Generation EBITDA driven by biomass and acquired assets Drax reported 1H19 results this morning. Adjusted EBITDA of £138m (vs £102m in 1H18) with the growth driven by the assets acquired from Iberdrola and biomass generation, offset in part by lower contributions from the customer business and core services. The contraction in customer EBITDA is due to volume reduction and integration/system costs, offset in part by lower net debt costs & growth in meters. Net debt of £924m is in line with our FY estimate of £911m, and Drax has reiterated its target of 2x net debt/adjusted EBITDA for end-2019, subject to reinstatement of the capacity market, which the company expects to happen in H2. 2019 H2 weighted, guidance unchanged It has previously been highlighted that 2019 performance will be weighted towards H2, and the outlook for the FY is unchanged. Key drivers are the profiling generation of the ROC units to H2, an increase in pellet production and cost reduction, delivery of performance target in the acquired hydro/gas assets, and improving the performance of the customers’ business. Drax has indicated it expects a FY dividend of 15.9p/share, 12.7% up vs 2018, and above our estimate of 15.3p/share. Contracted power sales now stand at 11.4TWh at £54.6/MWh (vs 8.6TWh at £53.3/MWh at FY18) for 2020, and at 4.6TWh at £51.1/MWh (vs 2.9TWh at £50.1/MWh at FY18). We see this as supportive of our medium-term estimates. Longer-term strategy to reduce biomass costs, and CCUS/gas development options Reducing biomass costs both in feedstock and in the UK are integral to Drax’s strategy for biomass operation beyond 2027, with CCUS and gas development further options.