Daily ShareChat: Vector Limited

By Jenny Ruth

Tuesday 15th September 2009

Vector's lower expected gas earnings and higher depreciation and interest costs has led Morningstar to cut its forecast net profit for the year ending June 2010 by $10 million to $158 million.

That compares with normalised net profit of $169.5 million in the year ended June 2009.

"Management said the first two months of this fiscal year was soft from a trading perspective. The gas business in particular remains quite challenged," Morningstar says.

"Its earnings are expected to fall further this year on the back of pricing pressure, higher costs and lower volumes."

Gas wholesale earnings before interest, tax, depreciation and amortisation (EBITDA) fell significantly to $81 million in the financial year just gone from $105 million the previous year. Morningstar says second half EBITDA fell more than 55% to $25 million.

"The wholesale business is suffering from lower volumes, prices and increased competition," it says. "The current recession is impacting natural gas and LPG volumes."

Vector is also facing higher gas costs from the run-off of the lucrative Maui contract, it says.

The company's technology business, which lifted EBITDA 21% in the latest year and by 57% in the second half, will continue to be underpinned by the communications division, while the electricity lines business is expected to remain stable.

BROKER CALL: Morningstar rate Vector (NZX: VCT ) as hold.

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