Drax Group - Term Loan Allows Refinancing

A new term loan for Drax allows it to meet the commitment signalled at the full year results to repay Q4 debt maturities. The company remains financially strong with FY 23 showing cash generation of £1,111m and a net debt to adjusted EBITDA ratio of 1.1x, down from 1.6x in FY 22. We think this leaves the company well able to fund its key investment opportunities.

Drax Group - Drax's Role in Energy Security

Drax’s importance in the UK’s energy mix has been recently highlighted by the Government’s decision to rule out mothballing in the consultation on transitional support for the biomass units. We see this as emphasising a growing demand for the type of assets Drax has, with a multiyear pinch point likely in the second half of the decade where Drax can benefit from growing system balancing revenues. Drax is targeting at least £250m of recurring revenue from Flexible Generation and Energy Solutions

Drax Group - Flexible Assets Drive Performance

Drax has issued its full year results showing strong performance from the pumped storage and hydro assets and a notably strong recovery in the energy supply business. The company has also set out strong targets for EBITDA post 2027 from its flexible asset portfolio and from pellet sales with more third party sales targeted. The remaining biomass units are currently under consultation for support between 2027 and 2030 when full support for BECCS is likely with recognition of the essential role of

Drax Group - Capacity Market Success

Drax has seen success in the UK Capacity Market auction adding £249m of income in the period from October 2027 to September 2028. Pricing has been strong reflecting a tightening of the market in this period and we expect that to continue to the end of the decade at least. As a key provider of flexible, dispatchable capacity to the GB power market we see Drax well placed in this environment. The pumped hydro and run of river hydro assets provide notable flexibility and the Drax biomass units rema

Drax Group - NAO Calls For Review Monitoring

The NAO has criticised a lack of evaluation of government approaches to monitoring biomass sustainability. It does not say that these approaches are inappropriate, merely that they cannot be demonstrated to be appropriate. It therefore supports a detailed review of monitoring which we see as consistent with already announced plans. Overall, we do not see anything here as particularly onerous for Drax and see better monitoring as building credibility for the BECCS solution.

Drax Group - Government Consults on Biomass

The consultation is out on bridging support for ROC funded biomass units including three units at Drax. Details of the final support package won’t be known until after the consultation closes and negotiations take place during 2024, but the very fact that this is being consulted on means support is likely at a level that will deliver a profit to Drax. Even if a final decision runs beyond any election, leaving such a significant amount of low carbon flexible capacity unsupported from 2027 would b

Long Duration Storage Consultation

Policy support for long duration energy storage in the UK looks set to use a cap and floor model which we see as a positive move, helping to reduce funding uncertainty for projects going forward. The consultation identifies a need for long duration flexible electricity capacity of at least 30GW and up to 50GW by 2035, making this an important area of opportunity in the UK power market. The consultation closes on 5th March so we could see final policy being announced during 2024.

2024 Outlook - Clean Energy In 2024

Performance of clean energy shares was weak in 2023 other than in storage. 2024 is likely to see storage continue to perform but renewables, bioenergy and hydrogen could also see an improved environment in the year. While elections in the US and the EU could result in weaker support for clean energy, these are to an extent offset by progress at COP28 and the extent to which electorates recognise climate change in the face of almost unavoidable evidence.

Drax Group - Government Support for CCUS

Today’s statement on Carbon Capture Utilisation and Storage confirms UK government support for the technology generally and represents progress towards support for Bioenergy Carbon Capture and Storage at Drax. In particular we see the recognition of world-leading economic benefits in the long term vision paper as important in building long term support for BECCS at Drax.

Drax- Cruachan Trading Strongly

Drax’s trading update confirms consensus expectations and the pumped hydro business in particular is seeing strong performance. Biomass is also finding new outlets with demand from a growing biofuels market and we see this continuing in the medium term. We have increased our forecasts for FY23 and FY 24 to reflect better capture of power market volatility at Cruachan putting EBTIDA at £1,158m and £1,181m respectively and our central valuation moves to 1063p from 1049p.

Drax Group - Canadian Support for BECCS

Support for bioenergy with carbon capture and storage (BECCS) has been given a boost through the inclusion of supportive legislative proposals in Canada’s Fall Economic Statement. This follows strong support from the UK Government in its August Biomass Strategy which included a clear analysis of the science. Drax is targeting annual CO2 removals in North America of 6Mt by 2030 and this move increases the potential for developing well-supported projects in our view.

LIBERUM: New Energy Nuggets: Hydrogen - the future is green

Drax- NAO Report About Value for Money

The National Audit Office (NAO) report into the UK government’s support for biomass is about checking that policy represents value for money and a normal response to policy announcements. We see Drax’s BECCS deployment as the only near-term solution at scale that can create negative emissions and it is difficult to see alternatives as offering better value for money in our view.

Drax Group - Government Backs BECCS

The UK government has today published its Biomass Strategy which includes clear support for bioenergy with carbon capture and storage (BECCS). The strategy is based on an analysis of the science summarised in a separate policy paper prepared by the Department for Energy Security and Net Zero’s Task and Finish Group. Another report examines issues around the public dialogue on the issue which at best remains divided. This has resulted in policy support for biomass and BECCS being seen as a key ri

Drax Group - System Support Drives Growth

Drax’s first half results show that it continues to benefit from providing key system support and flexibility to the GB power market. Generation has been particularly strong with a volatile market and forward sales driving notable strong performance in the pumped storage and hydro assets. Pellet production has also shown some modest growth despite outages and the customer business is very much back on track post COVID. Going forward the company continues to make progress on the development of it

Renold - Strong end to FY24: EPS up 11%. Robust FY25: EPS up 27.6%

The FY24 year-end update is very upbeat signalling trading being materially ahead of expectations, with a better-than-expected profit out turn and stronger cash generation. It continues to strengthen margins through efficiencies and investment in modern equipment. The order book remains close to record levels providing a robust view of future forecasts. In FY24E we upgrade EPS by 11% and in FY25E a significant upgrade of 27.6%. It looks capable of declaring a dividend in FY25 as well as manageme

Morning Note – 16 April 2024

Billington Holdings - Record result boosts dividend; forecasts upgraded

FY23 results show very strong growth over FY22, driven by strong Structural Steel activity, with results slightly ahead of upgraded profit expectations, while stronger than expected cash flow resulted in an unexpectedly generous dividend of 33p (offering a FY23 yield of 7.0%). The group now has net cash of £22.1m and is debt free and is therefore in a strong position for potential M&A activity. Following the recent £90m of new orders to increase the order book to record levels we conservatively

Plant Health Care - China distribution with AMVAC

Plant Health Care announced it has signed a distribution agreement with AMVAC, an American Vanguard Company, to support commercialisation of novel fertiliser products incorporating Plant Health Care's Harpinαβ in China starting in 2024. The novel product combines Harpinαβ technology with an AMVAC fertiliser and is expected to help growers improve crop quality and yield as part of an integrated and environmentally responsible crop production programme. AMVAC continues to evaluate Plant Health Car

Q1 Operating Results

Another Good Year of Diversified Growth with More to Come in 2024 CCapital have released their Q1 operating results. Overall, revenue has come in slightly lower than expected at $80.2m vs TamE of $85.9m but is largely tracking in line with our FY24 annual estimate and we note the company has maintained guidance. Drilling revenue for this quarter was impacted by a fall in utilisaztion rates as well as general remobilisation geographically but we expect a strong recovery throughout the year as k

Morning Note – 15 April 2024

Severfield - Multiple positives should excite investors

Severfield’s trading update indicates that FY23 results are expected to slightly exceed market expectations and the company ends the year with a record UK and Europe order book. Furthermore, with a positive trading outlook and net debt coming in lower than expected, Severfield has announced a £10m share buyback, highlighting the cash-generative nature of the company and management’s confidence in its position. The stock trades on an FY25 P/E of less than 6x and yields 7%, which we believe appear

Warns on brine supply costs

SP Angel . Morning View . Copper prices hold higher as China processing fees fall below $0/t amid low feedstock availability

PROGRESSIVE: Severfield: Targeted acquisition strategy aids growth path

Acquisitions have been an important element of Severfield management’s growth strategy, with the aim of adding new products, sectors and regions to what we have identified as exciting long-term organic opportunities. In this Spotlight report, we focus on the group’s targeted M&A approach, highlighting three significant deals.

discoverIE - Back to organic growth

discoverIE’s March year-end update confirms a strong operational performance in challenging markets. Following two years when sales increased by +48%, FY 2024 Group sales were +1% ahead of 2023 at CER (reported -3%) driven by a +2% contribution from acquisitions and organic -1%. As expected, organic growth returned in the later part of the year (Q4 +2%, +11% sequentially) and the order book has reverted to normalised levels of c.4.5 months’ sales, which – combined with a continuing strong pipeli

Invinity Energy Systems - Update on Strategic Investment

Invinity’s update on discussions with strategic investors reveals interest from multiple parties. While this has slightly delayed finalising an agreement it increases the potential for a better outcome. Although details are unknown at this stage, we think there is enough in the statement to be comfortable that any agreements will be consistent with the company’s strategy of growing market share in core markets and using a licencing and royalty model in other markets.

LIBERUM: Severfield: Erratum: Better EPS and cashflow, and buyback

PROGRESSIVE: Severfield: Step change in European and Indian outlook

Severfield’s full-year results to March will be ‘slightly above’ the Board’s expectations, according to today’s trading update, with net debt significantly better. We maintain our PBT estimates for both forecast years, which are ahead of consensus, but reduce our net debt for FY24E. Record orders were boosted by the steel specialist’s European operations, after last year’s Voortman acquisition, while the Indian JV has seen ‘another step up in profitability’. The group has also launched its first

Clean and competitive fertiliser