Electricity utilities see share price improvements

By Peter V O'Brien, Finance writer

Friday 25th January 2002

ELECTRICITY COMPANIES SHARE PRICES (C)

Company	Price 18.01.02	Price 22.01.01	%Change 22.01.01 to 18.01.02	2001 High	2001 Low

Contact	385	280	+37.5	420	259
Horizon	1395	930	+50.0	1417	900
Natural Gas	122	145	-15.9	148	85
Powerco	190	143	+32.5	366	285
United	800	790	+1.3	940	750
Trust Power	331	301	+10.0	357	300

Electricity generating and distribution companies performed well over the past year in terms of share-price appreciation.

With the exception of Natural Gas Corporation the listed groups improved in price between January 2001 (when The National Business Review last examined the sector) and last week.

Share-price movements for the period are in the table, as are the 2001 highs and lows.

United Networks' relatively small price increase of 1.26% was a contrast to the performance in 2000 when the stock improved 32.9%, well ahead of the other companies.

The company earned $53.55 million for the six months ended June 30, an increase of 11.6% on the $47.995 recorded in the corresponding period of the previous year.

Its latest interim result included six months of the gas business, compared with three months in the previous corresponding period.

United is due to report in February for the fully year ended December 31.

The company was the Stock Exchange's 11th largest by market capitalisation last week, taking Lion Nathan as a "New Zealand" group, although it is classified as an overseas company for listing purposes, because the head office is in Australia.

United describes itself as "New Zealand's largest network infrastructure company, distributing electricity to about 305 of the country's electricity consumers, gas to over 50% of New Zealand's gas consumers and owning and managing broadband communications networks in the Auckland and Wellington CBDs."

Edison Mission Energy's takeover bid for the shares it does not already own in Contact Energy affected the latter company's share price in recent months.

The $3.85 recorded at the end of last week was 29c below the offer price of $4.14.

Contact's profit for the year ended September 30 was $130.7 million, including $4.68 million of unusual items after tax, a substantial increase on the previous year's $96.98 million. which included after-tax unusual items of $35.88 million.

Adjusted net profits for 2001 and 2000 were respectively $126 million and $61.1 million.

Contact benefited from factors that caused problems for electricity companies.

Chairman Phil Pryke said the company could expect to do well in cold, dry years with its portfolio of hydro, thermal and geothermal assets.

Mr Pryke said Contact's mix of generating assets and a retail customer base left the company placed well to protect its customers from fluctuating wholesale electricity prices.

Chief executive Stephen Barrett explained what happened in the electricity industry over the year:

"The relatively low inflows into the lakes prompted conservation of existing storage. Wholesale prices then rose to reflect the scarcity value of the water as well as the cost of thermal generation brought in to replace the hydro capacity.

"This stands in stark contrast to last year's situation when a wet, warm winter depressed demand and resulted in an abundant supply of electricity at relatively low wholesale prices."

Mr Barrett's other comments could be seen as a warning for electricity consumers. He said new power stations would be required within the next three to four years, with investment decisions on new capacity necessary within the next year or so.

"New investment will require higher prices than prevail at present to justify investment.

"It is worth noting, however, that New Zealanders now pay, and for the foreseeable future will continue to pay, among the lowest electricity prices in the developed world."

Horizon Energy was the sector's best performer over the year, with a price rise of 50% on top of 20.8% in 2000.

The company's latest report covered the six months ended September 30 when $3.09 million was earned compared with $2.39 million in the same period of the previous year, an increase of 29.3%.

Chairman Colin Homes said he was confident of achieving a full-year profit of more than $5 million.

Horizon's profit for the year ended March 31, 2001, was $4.995 million, so it would not take much improvement to go past $5 million.

Natural Gas Corporation's share-price fall of 15.9% over the year disguised a significant improvement from the position in June when a price of 98c was a 38.4% decline since January 2001.

The company's problems are well known and reflected difficulties in coping with high wholesale prices which affected its electricity retailing business.

Natural Gas exited that activity at a writedown cost of $311.5 million.

Powerco, which operates in the southern half of the North Island, earned $17.61 million in the six months ended September 30. No valid comparison can be made with the previous corresponding period because it covered only one month.

The company has forecast profit of $33.4 million for the full year ended March, compared with an earlier prediction of $31.6 million.

Trustpower was another to suffer from high wholesale electricity prices, reflected in a $12.2 million loss for the six months ended September.

The share price held up well in the circumstances.

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