By Stewart Dalby
In its trading update on January 21 about the 2014 results, which were published on March 11, i.e. last week, Alkane Energy the UK gas-to-power producer, said adjusted PBT were likely to be in the £3.25m to £3.5m range, rather less than the company itself expected and a lot less than some brokers anticipated.
In the event, PBT came in pretty much in line with guidance. PBT was £3.3m. But the figures did, nevertheless, disappoint. House broker VSA capital said: “In its January guidance Alkane talked of PBT around 20 per cent below our original forecasts of £4.2m, so this result should not come as a shock to the market (ALK has fallen 34 per cent YTD and 13 per cent since its January update).”
The broker added: “As previously outlined profits were impacted by a combination of delayed new capacity at Whedale and Shirebrook, and fewer than anticipated STOR calls from the National grid. Revenue at £16m was 22.3 per cent down YOY (2013 £20.6m) VSA forecast £18m. The share price last evening was 21.50p.
But there were some positives in 2014. Electricity output (CMM and Power Response) was circa 195 GWh an increase of 1.5 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, 49MW Carron Energy) and in developing its organic pipeline.
Also, though prices were weak for the latter part of 2014, and continued that way into 2015, Alkane has managed to lock in a much higher proportion of this year’s output (82 per cent ) at £52/MWh and 36 per cent of 2016 output is contracted at an average price of £51/MWh. Average 2015 electricity prices at currently around £43/MWh with 2016 pricing currently predicted at £45/MWh.
VSA says: “For 2015 we would expect a 15 per cent jump in output to 230GWh as Maltby and other acquired assets make a full year impact for the first time, and forecast an adjusted PBT for 2015 of £5.4m.”
The broker feels that the forward pricing should hold the ship steady during 2015 and expects ALK to bid for capacity under the second Demand Side Balancing Reserve auction, which opened recently and also bid in the next capacity mechanism auction in late 2015, adding to the 55MW of existing (one year contracts) and 46MW of new build capacity (ten year contracts) it won in the December 2014 round. These deals in time will mean income of £14.4m over 15 years or £0.9m a year.
VSA says: We retain our BUY recommendation and target price of 49p.