MIDAS SHARE TIPS: Britain’s largest power station owner Drax can put the fizz into pints… and portfolios
Drax has spotted an interesting opportunity in the drinks sector.
Pub-goers may recall a flat start to the summer when a shortage of carbon dioxide meant a paucity of pints at the pump. The gas – a by-product of the fertiliser industry and vital in the creation of beery bubbles – was suddenly in short supply in June after a number of factory closures.
Drax owns Britain’s largest power station, located in North Yorkshire. This month it announced plans to start a trial into Bioenergy Carbon Capture and Storage.
The project – the first of its kind in Europe – could make the renewable power that Drax generates at the site carbon negative.
Share price bubbles: The power station could provide CO2 to brewers
What does this have to do with beer drinkers? It is estimated that a ton of carbon dioxide could be captured and stored every day under the trial. That’s enough to produce bubbles for 32,000 pints of beer a day.
It’s a fraction of the ten million pints of beer served across the nation every day, but every little helps. Drax says if the trial is successful it could even be scaled up, which means more CO2 and more boozy bubbles.
Drax specialises in lower-carbon energy and says it supports the UK’s ‘energy revolution’. The business generates 6 per cent of the country’s electricity and 11 per cent of its total renewable electricity from its site in Selby.
The firm wants to see a coal-free UK and has already upgraded three of its six power generation units from burning coal to using sustainable biomass in the form of compressed wood pellets, with a fourth being converted this year.
Half-year results from the company show Drax made a pre-tax loss of £11million in the six months to June 30, down from a £104million loss in the same period last year.
Shares slipped earlier this month as it revealed power outages had hit earnings. But the firm has maintained its full-year guidance and at 373¾p the shares are already 6.7 per cent up on when Midas recommended them in May at 350¼p.
Analysts at Credit Suisse expect the stock to outperform but warn that it needs to reduce its costs – already down by 15 per cent in real terms over the past five years.
Midas verdict: Hold. Putting the fizz back into pints isn’t ever going to be Drax’s raison d’etre but it’s an interesting side project for the power company and a handy diversifier, particularly at a time when the energy sector is under pressure from regulators.