Yesterday’s trading update from Drax Group, the owner of Britain’s biggest coal-fired power station, contained no clue to the 5 per cent fall in its shares.

The recent shutdown of power generating rivals to fit emission-reducing equipment has constrained short-term supply and sent fourth-quarter electricity prices higher – such that the company’s full-year operating profits will be “modestly higher” than consensus forecasts (currently £425 million).

Rather, the answer could be found in a separate statement by Drax to the Stock Exchange, in which it announced plans to develop three biomass-fired generators in Humberside and Yorkshire in a joint venture with Siemens for an estimated £2 billion.

Although that expansion will do much to enhance Drax’s output, taking its share of the UK generation market on completion to an estimated 10 per cent and reduce its spending on carbon permits, it will come at the expense of the company’s long-standing largesse.

Since floating three years ago, it has distributed all of its excess cash to shareholders – some £707 million to date, excluding its brief foray into buying back shares. That strategy will continue this year and next but, from 2010, Drax’s decision to take a £500 million equity stake in the biomass ventures means it will henceforth return only half of its surplus cash. In effect, investors are being asked for forgo an element of income in exchange for an acceleration in profit growth.

That decision inevitably disappointed some, but the logic appears sound. A stepped-up investment in biomass, effectively waste wood and straw, marks an extension of Drax’s progress in firing its existing station with such alternative fuels alongside coal. The short-term issue is how easy it will be to raise the debt finance for the project. However, with the funding not required until 2010 (the plants are due to enter service in 2014) that is a problem for another time.

With part of its cash-returning allure set to diminish, the buy case behind Drax remains pegged on Britain’s looming generation gap: the fact that its assets become more valuable as compliance with EU emission legislation between now and 2015 forces more capacity out of service. However, the concern that Britain’s recently high gas prices must fall in the near term, taking electricity prices with them, means that at 581½p Drax can be no more than a hold.

DSG International

John Browett has been in a bind before. DSG International’s chief executive was at Tesco when Wal-Mart bought Asda and threatened to upturn Britain’s grocery market. Before that, as an investment banker in the 1980s, he was involved in managing the fallout from the Texas oil bust. Yet it is doubtful whether these difficulties have matched those of his first year in charge of DSG.

Yesterday’s trading update by the electrical goods retailer brought more gloom. Like-for-like sales were down 7 per cent at Currys, and down 11 per cent at PC World. Consumers are even beginning to cut back on laptops and flat-screen TVs, hitherto the mainstays of the electronics market.

Mr Browett was right to point out that the slowdown is not “the end of the world”. However, the fear is what will happen to consumer spending when unemployment starts to climb. For now, he insists that the early signs of his turnaround plan are encouraging – as witnessed by the huge queues last week outside the newly refurbished Currys Megastore near Birmingham. Mr Browett is also conserving cash, cutting overheads and lowering stock levels, while this year’s capital expenditure is being reduced by £30 million.

The broader dynamics of DSG are depressing – not least the recent downturn in Scandinavia’s Elkjop, previously the saviour of its struggling international business. Pretax profits, which have bumped around £300 million for most of this decade, are expected to be only £80 million this year, and potentially as little as £50 million next year. This implies that the dividend will be cut again and possibly dropped altogether in the 12 months to April 2010. Even after the shares’ 80 per cent fall over a year to 25½p, or nine times current-year earnings, avoid.

Rightmove

Cornering 90 per cent of the market can be of little comfort when that market is falling fast. Take Rightmove, Britain’s biggest property website, which yesterday unveiled plans to cut a fifth of its staff. The company has spent its first eight years winning customers – so successfully that all bar 10 per cent of the nation’s estate agents pay monthly subscriptions to show their stock on its site. Now, with housing transactions having stalled, Rightmove’s task is to hang on to them – and that means account management, rather than sales, and fewer people. Rightmove is also scaling back its overseas operations. Perhaps more ominous is Rightmove’s decision to increase its marketing spend next year, which suggests that newer entrants, such as PropertyLive!, may be proving stronger competitors than first thought. Rightmove has been able partly to offset the effect of falling house sales by expanding in lettings, where activity has been underpinned by those unwilling or unable to buy new homes. The larger housebuilders have also been spending more on online advertising in an attempt to shift unsold developments. However, the oft-touted defensiveness of Rightmove – the two thirds of its sales drawn from subscriptions – appears fallible given the number of estate agents going out of business. It also suggests that the company may struggle to keep next year’s profits flat.

At 200p, a new post-float low, the shares trade at ten times 2009 earnings, not especially cheap. Sell.

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