Broker snap: Drax powers ahead this winter

22nd Feb 2011 12:09

The ability to respond flexibly to demand created by the colder weather at the end of 2010 was the key driver to power provider Drax's better than expected 2010 results, says financial services firm Matrix. "Despite being strongly contracted, the company has retained the flexibility to benefit from marginal demand and increased output 17% from 22.6 terawatt-hours (TWh) to 26.4TWh," says analyst Adam Forsyth. This increase has driven strong underlying earnings per share, up 10% to 64p, compared with a consensus estimate of 61.5p."Our 'buy' case is driven by the company's ability to use its flexibility to add value in spite of the current forward curve," says Forsyth. The group is to ready expand renewable biomass capacity with appropriate regulatory support, but "government policy in this area remains unsettled," Forsyth notes. "We expect greater clarity in the coming year," he added.A target price of 463p is confirmed.