Shares in Indian clean energy company Greenko (LSE: GKO) have fallen by as much as 9% today after the release of a profit warning. Greenko has stated that its 2015 full year results are likely to be lower than market expectations as a result of a late and slower start to the current monsoon season. This means that, while Greenko’s operating performance has been relatively strong, it has been unable to translate this into improved financial performance.
In addition, Greenko has announced a non-binding heads of terms for the sale of its stake in Greenko Mauritius for just under £163m to an affiliate of the Government of Singapore Investment Corporation. The sale of the stake would mean that Greenko disposing of its trading activities and assets which are made up of the ownership and operation of clean energy products in India. While talks are at an advanced stage, there is no guarantee that the sale will be agreed but, it if is, then Greenko expects to distribute the proceeds to its investors.
Clearly, the performance of Greenko’s shares in 2015 has been hugely disappointing, with them being down by 46% since the turn of the year. As a result, it now trades on a much lower price to earnings (P/E) ratio of 9, which indicates that its shares are very cheap. Certainly, today’s profit warning means that the 16% growth in earnings that had been expected for the current year is unlikely to be met but, even if the current year does disappoint, the strong outlook for clean energy in India remains relatively upbeat and, with such a low rating, Greenko could be an enticing purchase for less risk averse investors.
Of course, there are other options within the electricity sector. Notably, SSE (LSE: SSE) offers relative stability and, unlike Greenko, pays a great dividend. In fact, SSE currently yields a whopping 5.8% and, with dividends forecast to rise by 2.8% next year, it is likely that their growth will beat inflation over the medium term.
Furthermore, SSE is expected to increase its earnings by 6% next year which, for a utility company, is very impressive and is roughly in-line with the growth rate of the wider index. Despite this, SSE trades on a relatively appealing P/E ratio of 13.9 and this indicates that its shares are well-worth buying and, alongside their stable outlook, are more appealing than smaller peer, Greenko.
Meanwhile, Drax (LSE: DRX) continues to endure a very challenging outlook as it transitions from being a coal-fired power station to one fuelled by biomass. The change, though, is rather painful, with the company’s earnings falling in each of the last four years and being expected to do the same in the current year and next year, too. As such, it seems likely that investor sentiment may decline and put the company’s share price under further pressure, with it having fallen by 31% since the turn of the year.
Clearly, Drax has significant potential to be a key part of the UK’s energy mix via biomass. However, with its shares trading on a forward P/E ratio of 48, there seems to be little value in its shares at the current price. As a result, it seems to be one to watch, rather than buy, at the present time.
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Peter Stephens owns shares of SSE. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.