Drax (LON:DRX) announced its full year results (12 months to December 2010 - FY10) today and appears to have picked up where my analysis of 14 January 2011 left off. At the headline level, turnover and every measure of profit were up on FY09, resulting in a total dividend for the year of 32p and putting DRX on a yield of c8% based on a current market price of 403p. Whilst gross margin was down slightly and there are some headwinds which will lead to lower profits in FY11 (if market expectations turn out to be correct), this appears to be a strong operational performance. There is still some uncertainty concerning the further development on biomass, with the Company unwilling to scale up further in this area due to "insufficient regulatory support".
1/2 - Assets - NAV actually fell in the period from £1.025bn to £958m despite the increase in profits. This appears to be due in part to a £232m "loss" booked when forward contracts are marked-to-market through the hedge reserve. The market value is therefore at a 50% premium to net assets, but my previous comments on the matter still apply.
3 - Cash Flow - (a) net current assets of £92m and (b) operating cash of £466m after working cap and interest, to be used to cover replacement capex (£50m - estimate), tax (£67m - 2010 P&L), debt repayment in next 12 months (£68m) and FY10 dividend (£116m). This leaves £150-170m cash left over. There appears to be enough cash sloshing around to keep everyone happy.
4 - Debt - (a) the net cash position was £101m and (b) Adjusted EV/EBITDA of around 3x, which is very, very reasonable indeed.
5 - PER - is a very modest 7.8x based on FY10 EPS (basic diluted) of 52p
6 - Yield - FY10 DPS of 32p, represents a yield of 8%. This will be under pressure in FY11, but the Company is committed to paying out 50% of underlying earnings in dividends.
7 - ROE - FY10 ROE was 18%, which is more than satisfactory.
I consider these to be a strong set of results, particularly with the good cash generation and net cash balances overall. I still maintain that a long-term price target should be around 576p (at least) and I'm seriously tempted to top up at 400p or below. The shares are marked ex-dividend on 27 April if you want to catch that 17.9p final dividend.
Filed Under: Value Investing,
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