UPDATE 1-Drax power margins fall since Oct, trading in line

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LONDON, Dec 16 (Reuters) - British power station operator Drax (DRX.L: Quote, Profile, Research, Stock Buzz) said on Tuesday that power generation margins had contracted since October, although overall trading was in line with hopes. The group, which runs the Drax coal-fired station in northern England, said commodity prices had been “highly volatile” since the group updated the market on Oct. 23.

It said dark green spreads for 2009 — the difference between the wholesale price achieved for power and the coal and carbon dioxide costs incurred in generating it — had contracted during the period, although they remained healthy.

After falling more than 3 percent in early trading, the shares recovered to stand at 9 pence, or more than 1.74 percent up, at 525.5 p at 0944 GMT.

Utilities analyst Angelos Anastasiou at Pali International said the broker believed its 2008 full year forecast for pretax earnings before interest, depreciation and amortisation of 447 million pounds remained realistic. Pali’s target price on the stock was 823 p and it was maintaining its ‘neutral’ recommendation.

“Below 500 p, we begin to believe the shares are beginning once again to look good value,” Anastasiou said in a note.

The group said it had contracted to sell 25.5 terrawatt (TWh) hours of power in 2008, 19.8 TWh in 2009 and 17 TWh in 2010.

“We continue to follow our stated trading strategy of making steady forward power sales with corresponding purchases of (carbon dioxide) emissions allowances and solid fuel purchases,” Drax said in a trading statement. “Our aim is to deliver market level or better dark green spreads across all traded market periods.”

Drax said it had continued to trade in line with expectations since the Oct. 23 update.

It was continuing to actively manage its working capital position to optimise its cash flow next year, it said.

The group added that it expected fuel costs for 2009, excluding the cost of buying carbon dioxide emission allowances, to be similar to those for the current year.

By Philip Waller