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Hi Snoopy,
No time for reading and absorbing all your
wonderful words at present but hoping to get to it later today.
Regards,
Cris
----- Original Message -----
Sent: Wednesday, April 28, 2004 10:48
AM
Subject: [sharechat] Focus on
CEN(Part1)
Contact Energy is the fifth 'arm' of my income portfolio.
It doesn't get
discussed much on this forum which is surprising given that
at one
point more New Zealanders held shares in Contact Energy than any
other company. So how to value
it? The short answer is 'with
difficulty'.
CEN is a simple (sic) energy business but in this case that
means:
1/ An electricity generator and wholesaler
2/ An
electricity retailer.
3/ A natural gas retailer.
One of the best
ways to learn how to value a business is to get hold of
a Grant Samuel and
Associates appraisal report on it. These reports
are
rare as they are only issued in times of a takeover or perhaps a
move by
the existing controlling shareholder. In mid 2001 Edison
Mission Energy, 40% shareholder of Contact, gave notice that they
wanted to increase their stake. The conclusion of the Grant
Samuel
Appraisal report on the Edison bid at between $2.90 and $3.25 per
share was as follows:
"The terms of the proposed Restricted
Transfer are fair in so far as the
price received by those shareholders
who sell to EME is likely to equal
or exceed the fair market value of a
portfolio interest in Contact
Energy."
Translation: 'Shareholders who sell on market to EME will
get
market price'. Hmmm, well I don't need a highly paid consultant to
tell me that!
However, a rider in the recommendation of the
independent director's
covering letter is telling:
"Opinions as to
value can differ significantly with reference to the key
influences on
Contact's value. In particular these include views
regarding the
likely future price of wholesale electricity and what is an
appropriate
rate of return on the capital invested in the company's
business relative
to the market as a whole."
Clearly with hindsight those who sold out
around the $3 mark have
missed out on approximately an 80% gain in the
last three years and
would be feeling fairly foolish. It is clear to
me that a good
understanding of the wholesale electricity market and given
recent
asset revaluations, appropriate rates of return, are critical in
valuing
Contact Energy. That is what I plan to spend some time
looking at.
Please feel free to join
in.
SNOOPY
--
Message sent by Snoopy
on Pegasus Mail
version 4.02
----------------------------------
"Sometimes to see the
wood from the trees,
you have to cut down all the
trees."
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