Alkane Energy (LSE: ALK) is one of a number of companies contracted to provide power to the National Grid, in annual auctions aimed at guaranteeing that Britain’s network can continue to provide power during good times and bad.
But today, regulatory authority Ofgem has launched an enquiry into the information supporting last year’s applications from Alkane and from four other companies, querying whether or not the promises provided at December’s capacity auction were based on false and misleading data. It’s all part of the government’s promised plan to ensure the UK’s power supply systems can cope with demand, but is it working out for customers and for shareholders?
Nothing wrong, honest!
For its part, Alkane has denied that it has done anything wrong in its applications to the auctions, saying it “does not believe it is in breach of the Capacity Market Rules and will fully cooperate with Ofgem’s investigation“, and has said that it will cooperate with the Ofgem probe. But that hasn’t saved the share price, which is down 6% to 23p as I write — and that reverses a recent recovery since April that saw the shares gain 28% to a price of 25.p in mid May, cementing a 12-month drop of 37%.
There’s clearly a fair bit of risk added to Alkane Energy as a result of these tidings, but might that make the shares an even better bargain than they already were?
The rise of 25% in EPS forecast for this year puts the shares on a forward P/E of only around 7.5, dropping to a mere 6.8 based on the latest soothsaying for 2016. Dividends are only just getting off the ground, having proved yields of less than 1% since 2012’s maiden dividend, and there’s very modest yield of 1.5% expected this year followed by about the same next year. But these days are really too early for evaluating Alkane Energy as an income stock, with its true growth potential still unknown.
It’s all about future potential right now, and today’s news is the kind of setback that does often afflict companies at this stage in their growth. Does the latest share price make Alkane Energy look more like a long-term bargain right now? If you want a growth component in your portfolio and aren’t too worried about the risk, you might still do well.
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Alan Oscroft has no position in any shares mentioned. 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.