Drax to buy SME energy supplier Opus Energy for £340m
By Michele Maatouk
Date: Tuesday 06 Dec 2016
(ShareCast News) - Drax surged as it announced a conditional agreement to buy Opus Energy for £340m and an agreement to acquire four open cycle gas turbine (OCGT) development projects for electricity generation, although it did also reiterate that full-year earnings were likely to be at the bottom end of market expectations.
The FTSE 250 power generation firm said it is also continuing to monitor opportunities to acquire further wood pellet plants.
Drax said that as outlined in its half-year results, it has been exploring options to improve earnings quality and deliver targeted long-term growth, evaluating opportunities to diversify across the markets in which it operates - pellet supply, generation and retail.
The company said Tuesday's announcement marks a significant milestone in the execution of its strategy, helping it to change the way energy is generated, supplied and used "for a better future".
Drax said Opus is a well-established and proven retail business serving the SME market, with a compelling range of strategic and financial benefits such as the acceleration of retail strategy and attractive financial returns. In addition, the deal is expected to be significantly accretive to earnings, with strong cash flow generation next year.
The company has also agreed to buy four OCGT projects for an initial purchase price of £18.5m, with final consideration dependent on clearing price in capacity market auctions.
Drax also provided an update for the period from 1 July to date, saying it still expects full-year earnings before interest, taxes, depreciation and amortisation to be around the bottom of the range of current market forecasts of between £135m and £169m.
Chief executive officer Dorothy Thompson said: "Drax is already playing a vital role in helping change the way energy is generated, supplied and used as the UK moves to a low carbon future.
"Today we are pleased to announce the proposed acquisition of Opus Energy, the UK's leading challenger retail supplier in the SME market, creating a strong and competitive presence complementing our existing Haven Power offer."
Thompson added that the four OCGT development projects will play an important role in helping the government meet its ambition of new gas generation, reducing carbon emissions, forcing more coal off the system, providing additional system support to 'plug the gaps' created by intermittent renewables and boosting security of supply.
RBC Capital Markets said: "We have previously stated that we see Drax as a limited life asset in its current form and that strategic changes are necessary to make us reconsider our 'underperform' stance. It appears that Drax has taken a significant step in the right direction this morning."
At 1150 GMT, the shares were up 16% to 323p.
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