Alkane Energy
HOLDThe soaring price of energy is bolstering prospects at methane extraction specialist Alkane Energy but is making shares in the company equally volatile. We recommended the group at 37p in July. Since then the price has jumped as high as 49p. Mildly disappointing interims saw the shares fall back 14% to our recommendation price. But investors should keep holding as the company is on track to match forecasts for the full year. This is despite turnover dropping 30% to £4.63m in the first half of this year, with losses flat at £875,000. However, most of the sales at Alkane’s German manufacturing subsidiary Pro2 are recorded in the second half. And Pro2 looks like having a record year, with 92 per cent of the annual targeted revenue secured as of the end of August. Alkane also obtains revenue from selling generated power. Three years ago, when the electricity price was £14 per MWh, this was uneconomic. Now, with the price standing at £40 per MWh, Alkane’s plants on top of abandoned coalmines seeping methane should contribute significantly to the group’s revenues. Four UK plants are now in production as well as several in Germany. This means Alkane should break even this year and match Brewin Dolphin’s forecast next year of a £3.1m pre-tax profit. That equates to earnings per share of 2.2p, putting the shares on a p/e of 16.3. That does not include any benefit from selling carbon dioxide emission credits from burning off methane, now recognised by the UK Government.
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Market cap: £32.4m
PE Forecast: 16.3
Share price: 35.75p
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