Contact sticks to its guns on no guidance

Thursday 22nd October 2009

Contact Energy, the country's largest listed power company, fended off shareholders and reporters seeking any guidance on the company's performance in the first three months of the new financial year at the annual meeting in Wellington today.

The shares fell 1.1% to $6.20 ahead of the annual meeting, following release of directors' speech notes that were short on detail and long on the reasons for last year's 31% underlying earnings drop, in a meeting that lacked any of the drama of last year's confrontation with shareholders over directors' fees.

Chief executive David Baldwin assured reporters after the meeting that the company would be obliged to make a statement if it disagreed with the consensus among forecasters. He was coy around giving a timeframe as to when the company would give concrete guidance, and said Contact's half-year report would be out in February.

"If consensus in the market moves too far away from where we think it goes, we'll make an announcement - at this stage we're comfortable with it," Baldwin said. Analysts' EBITDAF consensus is in the "vicinity" of $485 million, he said, against last year's $445.3 million.

Alan Moore, who helps manage the equivalent of $300 million at Milford Asset Management, said the company's announcement didn't add any new information, and he wasn't surprised it refused to provide guidance to investors.

"I'm not sure they know where Contact is going themselves," he said. "They're still suffering from a lack of customers and a lack of confidence in the board."

Chairman Grant King warned that dividends will only be retained at current levels if profitability returns to "more normal levels".

"We have made it very clear we would need to see some restoration of those profits (last year) in order to keep dividends at the prior level," he told BusinessWire.

This is concerning for Moore, who said the major shareholder, Origin Energy, wasn't overly reliant on dividend payment.

"I don't think it will have quite the same impact on Origin as it will on New Zealand investors." At the current share price, Moore said he'd probably recommend the stock as a hold.

Businesswire.co.nz

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