Drax shares leap on £340m deal

'‹Shares in p'‹ower '‹producer Drax '‹jumped 12 per cent following the news it is to branch out into new energy markets with the £340m purchase of gas and electricity supplier Opus Energy'‹.

Drax Power CEO Andy Koss said Drax wants to deliver longer term, high quality, more diversified earnings

The ​Selby-based​ ​​group said the takeover of small business supplier Opus will com​pliment its existing Haven Power ​business, which supplies bigger customers, to create Britain's fifth biggest non-domestic energy retailer.

Shares in Drax​, which​ own​s​ Britain's biggest power station​,​ soared by as much as 20​ per cent​ at one stage after ​the group unveiled the acquisition as well as a move to buy four gas stations.​ They​ closed ​the day ​up ​12​ per cent​, a rise of 33.6p,​ at ​311​p.

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​​Drax Power CE​O ​Andy Koss​ said: "We want to deliver longer term, high quality, more diversified earnings, not just commodity earnings. We are looking to the retail market.

​"​Haven is focused on larger businesses whereas Opus is focused on the smaller end of the SM​E​ market with smaller volumes and higher margins. It will be a very good fi​t​."

He said that the energy market has reached a tipping point.

"We are seeing increasing volatility in the ​ma​rket​ and​ higher prices. Older, conventional plant is closing and coal will be a thing of the past soon," he said.

​Referring to the rise in green energy, he said: "We need to fill in the gaps when the sun isn't shining and the wind's not blowing."

Drax is now 70 per cent biomass and the goal is to be 100 per cent renewable with no more coal burning.

"We stand ready to convert to biomass. We need Government support to do it."

He added that bio conversions are one of the cheapest sources of fuel. Over 50 per cent of the electricity produced in the UK in the third quarter of 2016 came from low carbon sources.

"We are decarbonising the power sector."

The group is keen to expand in to direct energy supply and back-up power, especially as coal plants will be forced to close by 2025.

Alongside the Opus deal, Drax said it would pay £18.5​m to buy four projects to build open cycle gas turbines.

​Drax chief executive Dorothy​ Thompson said: "These initiatives mark an important step in delivering our strategy, contributing to stronger, more predictable, long-term, financial performance, through greater diversification of the businesses."

​Energy ​analysts at Jefferies said the moves signalled a "reinvention" for Drax.

​"We see three key benefits from today's acquisition​," they said in a note.

​"Firstly, Opus Energy looks like a well run retail business with attractive margins in a segment that is not hugely exposed to political and media scrutiny compared to the domestic retail market.

​"Secondly the​ deal increases the stability of Drax's earnings and cash flows going forward​ and thirdly, there are also some opportunities for synergies related to Opus' current trading agreements.​"​

​​Drax said that five of its shareholders, representing more than 45 per​ ​cent of its issued share capital, have said they will support the purchase of Opus.​