Investors in Drax were given a jolt this year when the energy company put its dividend policy under review, prompting analysts to speculate about lower payouts.
In a capital markets day presentation at the Connaught hotel in Mayfair yesterday, Drax lifted the lid on how it was managing the long-term shift out of coal-powered electricity generation into cleaner energy.
Drax intends to return £50 million to investors this year, and use that level as a floor from which it expects to boost the dividend in future, reflecting what it calls a more stable earnings and cashflow outlook as well as its investment needs.
Alongside this guidance, Drax also outlined plans to generate earnings before interest, tax, depreciation and amortisation of more than £425 million by 2025, more than a third of which it said would come from its growing retail and biomass supply businesses.
Although the 2017 dividend at 12.4p a share was ahead of consensus forecasts, the stock yields only 3.5 per cent, and there was nervousness among investors over the trajectory of shareholder returns.
Likewise, the trading target was also above the City’s expectations and considerably higher than the £260 million or so pencilled in for 2018. There was some scepticism about how Drax would hit these numbers, and over the outlook beyond 2027 when subsidies expire.
Drax, as the company’s share price attests, has been a volatile stock over the years, exposed to the risks of the fluctuations of wholesale prices and government policy.
The company has been trying to diversify its electricity generation mix away from its reliance on wood pellets and coal, the fuels it uses at its Selby power station in North Yorkshire. It has bought four gas power plant projects for a combined figure of £18.5 million from Watt Power, part of the Noble Group, and acquired Opus Energy in a £340 million deal to bolster its Haven Power business, which supplies business customers.
It has also been converting its boilers at its main Yorkshire power station from coal to wood, in line with the government’s aim to close coal plants by 2025. Three of the six units have been converted, generating about 70 per cent and have long-term government-backed contracts, giving some stability to its earnings.
My advice Buy
Why Considerable risk and uncertainty remain but potential for dividend to increase from its floor
Safestore Holdings
Heading into the peak seasonal trading period when there are more house moves, Safestore yesterday issued a half-way update with few surprises.
The storage company posted a 3.7 per cent rise in like-for-like revenue, at constant exchange rates, and progress following recent store acquisitions and that of Space Maker, a UK competitor, prompted the City to leave forecasts largely unchanged.
As expected, given the slowdown in the London property market — the company has 44 of its 240-odd UK stores inside the M25 — UK average occupancy and storage rate growth cooled.
However, Safestore’s business in France, where the economy is gathering pace and it has a dominant position in Paris, has momentum as more people opt to move house. Currency fluctuations are also positive. A 4.2p interim dividend points to management confidence.
The self-storage market remains immature, with scope for Safestore to deploy its cash after dividends to build two to three stores a year. The shares have been on a good run, rallying 30 per cent since the start of the year to a record high, boosted by a refinancing and outstripping Big Yellow Group, its listed peer.
My advice Hold
Why Has weathered property slowdown and customer inquiries are strong
Newriver REIT
For a shopping centre property investor to launch a £225 million fundraising on the day that DFS was hammered on a profit warning and official figures showed a decline in monthly retail sales is on the face of it audacious.
Newriver REIT, though, has been confounding sceptics since it was founded and floated in 2009, at a time when shoppers were also feeling the squeeze after the financial crisis, with occupancy rates consistently above 94 per cent.
The company, backed by the investor Neil Woodford, has 33 shopping centres, about 61 per cent of the portfolio, in the regions but is seen as a defensive player, insulated from the wider pressures being felt by swathes of the retail sector because of its leaning towards the discount end of the market. Tenants include Primark, Poundland and Home Bargains and other brands offering cheap household essentials. Newriver is also geographically spread, operating from Hastings to Glasgow.
Fresh from unveiling Brexit-defying full-year results last month, which have sent the shares to a record high, Newriver tapped the market yesterday for £225 million through a placing and open offer handled by Liberum and Peel Hunt. Part of the funds will be used to buy out the 50 per cent of its Bravo joint venture, established in 2012, that it does not own and another chunk will bankroll the development of up to 30 convenience stores for the
Co-operative and the Canvey Island retail park.
My advice Hold
Why Recovered from Brexit selloff. Blue-chip institutions like its market sweet spot
And finally . . .
Bulletin board reaction to the takeover of Monitise by Fiserv, the US-listed financial services company, was hardly emphatic but institutional investors are making their views known. Cavendish Asset Management, the biggest shareholder in the bombed-out mobile payments company, with a stake of 4.8 per cent, has come out against the “far too low” all-cash offer, which values Monitise at 2.9p a share, a premium of 26.1 per cent. Paul Mumford at Cavendish is urging investors to review the situation.
