Drax shares leap on Â£340m deal

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 compliment its existing Haven Power business, which supplies bigger customers, to create Britain's fifth biggest non-domestic energy retailer.

Shares in Drax, which owns 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 311p.

Drax Power CEO 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 SME market with smaller volumes and higher margins. It will be a very good fit."

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

"We are seeing increasing volatility in the market 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 £18.5m 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.