By Stewart Dalby
In line with its established practice, Alkane Energy the UK gas-to-power producer has released a trading statement ahead of its final results for 2014 which are due to be announced on March 11. The company has reported a weak final quarter to 2014.
The mild and stable weather at the start of the British winter impacted on power demand and prices in both the company’s core – base load coal mine methane gas- to power- business and its fast- growing and lucrative diversification into STOR or Power Sourcing. This is when demand for CMM drops a plant can be switched to the National Grid and supply mains gas at times of peak demand or seasonal shortages.
Broker VSA Capital says that it expects revenue for 2014 to be c£18 million (some 14 per cent down on its forecast of £20.9m) and an adjusted PBT of £3.25- £3.5m around £16.7 per cent – 22.6 per cent below its predicted £4.2m.
Broker Arden said the number of STOR calls dropped off sharply in the last quarter 2014, from 66 in 2013 to just 29 in 2014. It was expecting PBT figures of £4m. Also exceptional items are likely to run out rather lower than anticipated at a net £1.5 million. This is largely due to including the 18 per cent holding in Egdon Resources at the current price share price of 9.375p rather than at the time of the shale assets sale when it was 27.5p.
But there were some positives in 2014. Electricity output (CMM and Power Response) was circa 200 GWh an increase of 4.2 per cent YoY (2013: 192GWh). The group now operates from 27 mid-size (up to 25MW) power plants across the UK, 13 are CMM only, 7 are mains gas only, 6 use both fuel sources and 1 uses kerosene only.
The group made significant progress in 2014 in its power response business through acquisitions (10MW Whedale, 49 Carron Energy) and developing its organic pipeline, supported by the award of Capacity Mechanism agreements concerning the development of 46MW of new generation capacity to be completed by winter 2018. This will means income of £14.4 million over 15 years or £0.9 million a year.
Also, though prices have been weak for the latter part of 2014, Alkane has managed to lock in a much higher proportion of this year’s output than it did before (as at December 31 2014 82 per cent of 2015 output is contracted at an average price of £52/MWh). It has even managed to get 30 per cent of its 2016 output sold at £51/MWh. The current electricity price £43/MWh.
Despite all this, the trading statement and the weakness of demand in the last quarter of 2014 was bound to bring about share price weakness the shares are now trading at their 52 week low of 22p having been 47p at one point.
However, VSA says: “ For 2015, we would expect a significant jump in output as Maltby (down for maintenance for three months in FY 2014) and other acquired assets make a FY impact (VSA est: 230GWh). Given the level of output already forward sold, we expect and adjusted PBT of £5.5m for FY2015”.
It adds: “We retain our BUY recommendation, but having made certain adjustments to our model ) including reducing average selling prices in future years) we have adjusted our target price to 49p.