'Wires and poles' firm takes high-tech route

Friday 26th January 2001

Dan Warnock

By Nick Stride

It isn't often you see a "wires and poles" distribution company rated an "absolute buy" by a sharebroker. But that's the recommendation ABN Amro has on United Networks, the $2.2 billion Takapuna-based utility.

Dan Warnock, the company's US-born chief executive, said the accolade was deserved.

"We're not a 2% to 3% growth company," he insisted. "We're looking to grow the dividend at 10% per annum."

Mr Warnock presides over New Zealand's biggest electricity lines owner, reaching a third of the country's homes, and the largest gas distributor, with 55% of the market.

But it's last year's leap into telecommunications that has drawn investors' interest.

Since United Networks announced last July that it would roll out an "open access" fibre-optic broadband network in Auckland and Wellington the share price has climbed 28%, to over $8 recently, making it one of the market's best performers.

That will be music to the ears of Kansas-based Utilicorp, which owns 78.8%.

Mr Warnock thinks Utilicorp will sell down its holding to improve liquidity in the shares as well as to free up cash. With a further 10.7% owned by the Waitemata Shareholders Society, the vehicle of three Auckland councils, only a tenth of the shares are available for trading. But he said Utilicorp would retain control.

United Networks is also considering a share issue or placement. A planned 12.6 million share placement had to be cancelled in September 1999 after a slump in world equity markets.

Now, Mr Warnock said, the company was attracting serious interest from institutions.

The recommendations of the Caygill inquiry into electricity sector regulation will soon go up for select committee consideration but he doesn't think the resulting regime will be anything United Networks can't handle.

In any case the electricity side of the business, in which United Networks is integrating the former Power New Zealand, TransAlta and Trustpower networks, is the least exciting.

"The reality is that the electricity business isn't going to give us huge amounts of growth," Mr Warnock said.

"We face stable or declining prices after we've put together the synergies, the new business processes, the automation. It's a solid earnings company."

Gas is "a different story."

Last year United Networks spent $550 million buying the Auckland, Wellington, and Hawke's Bay gas distribution networks of Orion, the former Enerco.

According to ABN Amro, customer numbers were surging ahead under Enerco. At the peak Enerco was connecting 10,000 new users a year but the rate slowed down to 3500 under Orion.

United Networks is planning a big customer push, particularly in Auckland, where only 28% of potential users are connected.

Mr Warnock said the pipes were already laid down streets in many areas so it was simply a matter of persuading customers to sign up. High-yield commercial customers would be high on the target list.

But it's the new ICN (information and communications network) that has drawn the most attention. Mr Warnock said it had three advantages over competitors in the burgeoning bandwidth market.

The first is installation cost. The cables are being pushed down the ducts of the gas network at about a quarter the cost of the trenching method with which Telstra Saturn and Clear Communications are infuriating Auckland drivers and pedestrians.

Secondly, the company claims, it will be very high-speed (up to a gigabit per second) and user-friendly (employing the "fairly agnostic" ethernet).

Thirdly, the wholesale open-access model will be New Zealand's first, with the possible exception of Wellington's Citilink.

The cost over two years will be $30 million. Over 10 years that could climb to $100 million "but that will all be consumer demand-related," Mr Warnock said. "From a strategic standpoint it will allow us to become a 'bricks and clicks' company with a relatively small investment."

The network ''lights up" on February 22 and will be connected to the Southern Cross cable.

Mr Warnock foresees further ICN opportunities and possible acquisitions of electricity and gas networks. "There are still 30 power lines companies, and that's too many for a country the size of New Zealand."

United Networks will report its calendar 2000 result on February 2. ABN Amro is forecasting an 11.7% rise in turnover to $108.8 million and a 33c dividend for the year.

Comments from our readers

No comments yet