By Jenny Ruth
|
Tuesday 26th May 2009 |
Text too small? |
Auckland-based electricity lines and gas company Vector faces very high regulatory risks as the government controls electricity and gas pricing, according to Morningstar Research.
"The Auckland region will continue to experience above average growth rates compared to the rest of the nation because of immigration and the migration of people from smaller towns and cities in search of opportunities," Morningstar says.
That should mean increasing electricity revenues for Vector but the government-determined price reset program, which is expected in April 2010, "will be closely watched." Vector is negotiating with the government to push that date out because the government hasn't yet come up with the requisite parameters.
Morningstar says Vector enjoys a monopoly status in electricity distribution in Auckland.
Vector also faces electricity and transmission risk, given that it is reliant on sufficient energy being available to supply, it says.
The rollout of broadband provides the company with an opportunity but the firm's decision to invest in such a network will depend upon whether it is able to achieve an acceptable rate of return, it says.
"We think Vector shares (trading at $2.17 compared with Morningstar's $2.05 valuation) are fairly valued and adequately reflect the company's near to medium term fundamentals."
BROKER CALL: Morningstar Research rate Vector (NZX: VCT ) as HOLD.
No comments yet
Vector ekes out 2.3% gain in FY profit as technology unit bolsters earnings
Vector may beat guidance for FY 2013, suffer 2014 earnings drop
Vector cleared to buy Contact Energy's gas metering business for $63M
Vector to cut gas distribution prices by 18 percent
Vector 1H result up 10.8 percent in flat economy
ComCom takes issue with Vector on regulated rates of return
Vector credit rating may come under scrutiny
Vector profit steady, underpined by revenue growth
Long-running battle over power line prices coming to a head
Vector appoints Beddoe as chief risk officer
