By Jenny Ruth
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Sunday 6th March 2011 |
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Contact Energy's first-half results were sound but lacked spark, says Matt Henry, an analyst at Goldman Sachs & Partners.
While an estimated 7.5% growth in retail tariffs and a 26% rise in wholesale prices was positive, negatives included the loss of 13,000 retail customers, the new greenhouse gas emissions scheme cost Contact $19.5 million and its paid 11% more for gas.
"Contact continued to be impacted by the lack of flexibility in its gas supply and thermal generation fleet with take-or-pay gas left unutilised or sold at 'distressed prices' costing $23 million,” Henry says. The cost in the previous first-half was $19 million.
Its gas storage facility and peaker plant investments becoming available in the second half and the expiry of one gas contract on January 1 means the risk of distressed sales of gas is significantly diminished, “likely negating most, if not all, of the $23 million impact seen in the first half.”
Contact hasn't yet said specified the size of its planned rights issue to fund its about $623 million Te Mihi geothermal project but it will dilute earnings growth.
"Whilst we see potential long-term value in Contact via leverage to upward pressure on the electricity price, we do not expect the stock to outperform the market on a 12-month timeframe."
Recommendation: Hold.
UPDATE Contact increases dividend as FY earnings rise; quits wind projects
Contact increases dividend as FY earnings rise in competitive market
Contact shares drop to 2-month low, says 'hard to see' investment under Labour-Greens plan
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Solid first half for Contact, despite retail margins squeeze
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Contact Energy's King hints at greater returns as cash mounts
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Elliott leaving Contact for Origin role
Contact sees 2014 cash-flow boost as projects put on ice
