Forum Archive Index - December 2002

[" Hans van der Voorn" <vandervoorn@xtra.co.nz>]

Robert and Snoopy,

The one thing to keep in mind with these two stocks (and a few others) is
the imminent decline of the Maui gas field. CEN gets nearly all of its gas
from the Maui field and NCH gets the majority of its gas from there as well.

The situation is still evolving but a number of things are clear:

The output from the Maui filed will decline rapidly over the next few years.

Gas in NZ has been cheap in recent decades because of the large volumes
available from Maui and the way the gas was originally sold to the Crown
(take or pay contract). This has underpinned a lot of industrial
development.

This will no longer be the case, gas will be in short supply, driving up the
price and also driving up the price of electricity.

NCH in particular has made healthy margins on its gas sales because of the
low price it has been paying based on historical contracts. Its margins and
volumes are likely to decrease over the medium term. If volumes decrease,
revenue from its pipeline businesses will also be affected.

CEN will be affected to the extent it is unhedged on its electricity
purchases. It has a net generation capability but has recently made an
announcement that short term profits will be affected by high wholesale
electricity prices. In the event of a gas shortfall, it generation
capability may reduce. This may be offset by the higher value of its hydro
produced elecricity.

In my opinion there at least two major energy users that I would expect to
see close down, Methanex at Motonui and NZ Steel.

Personally I would still be interested in CEN long term but would avoid NCH.
I'm not attracted to the short term price of either.

Members might also want to consider the effects of higher energy prices on
major energy users, eg CAH, FFS, and on the NZ economy in general.


Hans




----- Original Message -----
From: <tennyson@caverock.net.nz>
To: <sharechat@sharechat.co.nz>
Sent: Saturday, December 07, 2002 8:03 AM
Subject: Re: [sharechat] CEN, NGC


> Hi Robert,
>
> >
> >Any comments or recommendations re BUY/HOLD/SELL for Contact Energy
> >and Natural Gas Corp. I'm in Australia!
> >
> >
>
> Well, if you wanted to invest in the New Zealand retail gas sector,
> you just about summed it up!
>
> If you choose CEN you get a few electricity power stations and retail
> customers thrown in as well.  CEN is under a perpetual threat of rape
> by majority shareholder Edison Mission Energy from the USA.  This
> ensures a good dividend flow from the company, but means there are
> seasonal threats to put the company on negative credit watch.
>
> CEN are looking at buying power station stations in Australia as part
> of a vision of long term growth.  So far they haven't found anything
> at the right price.  It is very heartening that CEN should retain
> such management discipline.  The prevailing corporate culture in
> kiwiland is to expand no matter what and see if it is a good idea
> later!  The share price is trading near an all time high for the
> year.  But take off the imminent 15c per share dividend payment and
> it starts to look more reasonable in price.  I'd describe CEN as a
> solid portfolio cornerstone blue chip.   Profit warning for the first
> few months of this financial year, due to weather factors, but this
> should not be of concern to the long term investor.  I'd rate it as a
> moderate BUY/strong HOLD.
>
> NCH is the rump of what was New Zealand's largest energy retailer.
> With the electricity retailing business sold, and the power
> stations on the market NCH is poised for a future as a gas pipeline
> owner and retailer only.  Much of the current run up in price I
> believe is due to the prospect of a capital return rather than any
> inherent sudden strength in the business.  If I held these shares I'd
> be hanging on waiting for my payout, but would I be buying in at this
> late stage?  IMO there are better opportunities elsewhere in the
> market out there.  I'd rate it a HOLD, perhaps a SELL into any price
> spike.
>
> Good to welcome a new poster here Robert.  Maybe you might like to
> give us a snapshot view of the gas market in Australia?
>
> SNOOPY
>
> discl: hold CEN
>
>
>
> ---------------------------------
> Message sent by Snoopy
> e-mail  tennyson@caverock.net.nz
> on Pegasus Mail version 2.55
> ----------------------------------
> "Q: If you call a dog tail a leg, how many legs does a dog have?"
> "A: Four.  Calling a tail a leg doesn't make it a leg."
>
>
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