Broker snap: Charles Stanley sits on Drax fence

24th Feb 2010 12:49

The stock market and the share price of Drax Group have gone in opposite directions over the last year and a majority of brokers that cover the company remain bearish on the stock.Broker Charles Stanley is stuck in the middle after the coal-fired power station owner's 2009 results announced on Tuesday, which topped expectations but which also painted a mixed picture of future prospects.'For 2010 and beyond, Drax continues to see narrow dark green spreads (power revenues less the costs of coal and carbon) driven mainly by low forward gas prices (global gas surplus) compared to those of coal (strong demand in China and India that is providing a floor for European prices), partly offset by Drax's flexibility and support from the strong hedge position (but outer years still exposed to volatile commodity prices and 2011e [consensus] EBITDA [earnings before interest, tax, depreciation and amortisation] likely to come down), the broker states.With around 15% of the UK's energy capacity set to shut down by 2015, Drax remains a 'key power generator' in the UK but the broker prefers 'other companies in the sector that have more diversified business models.' Charles Stanley is sticking with its 'hold' recommendation and is slightly above consensus with its 2011 revenue forecast of £1,368m (versus consensus of £1,358m) but below the median forecast on EBITDA (£324m versus £378m).