United Networks outstrips other utilities in year's share price gains

Friday 26th January 2001

By Peter V O'Brien

Some heat was taken out of next week's Contact Energy annual meeting when the company's directors decided not to pursue an attempt to raise their fees.

Contact still has to deal with expected hostile questioning over the salary package deal with former chief executive Paul Anthony.

The company's recent controversies, including a profit downturn in the year ended September, were some of several events affecting the utilities sector.

Comparative share price movements for six utilities, including Telecom, are in the table.

Prices in the second column were taken at October 9, that being the last time The National Business Review examined the sector.

Comparative figures for Powerco were unavailable because the company listed in December at $1.30, compared with an issue price of $1.20.

TransAlta was delisted after the October survey. Natural Gas Corporation completed a takeover and set about dealing with internal problems and competitive pressures in the greater Wellington area.

Householders in the region were upset when TransAlta increased its fixed line charges last year and many switched to the other companies that entered the market.

Tauranga-based Trustpower, Todd family-owned FreshStart and State-run First Electric ate into TransAlta's customer base. Aggressive marketing and lower price packages helped Trustpower and FreshStart gain former TransAlta customers.

Comments in Natural Gas Corporation's report to the Stock Exchange for the year ended June 30 summed up the current state of the electricity industry.

Chairman Len Bleasel said the energy markets in which the company operated were highly competitive and "characterised by aggressive traders and increasingly discerning and knowledgeable consumers."

The company expected energy trading would continue to be turbulent.

Natural Gas "had faith in its combined resources and product capabilities to succeed in our objectives to strengthen our operational performance and to achieve sustainable earnings growth."

Other companies would probably express similar sentiments, a natural situation, given their desire to appear positive in public statements. Investors may have a more cynical view, because there was substantial variation in electricity company share prices over the past year.

United Networks performed best with a 32.9% share price rise since the end of 1999.

The company said in July that 18 months earlier it "transformed itself into the largest electricity lines network company in New Zealand when it purchased the lines business of TransAlta and Trustpower."

United is certainly big. Shareholders' equity was $797.73 million at June 30 and total assets were worth $2.3 billion. Last week the company ranked 11th on the Stock Exchange list by market capitalisation.

It sees itself as a "network infrastructure company" and has developed the concept to the point of operating fibre-optic networks in Auckland and Wellington using its current gas distribution pipelines.

Telecom was the big loser in share-price performance among utility companies last year, although there is a considerable difference between operating a telecommunications company and being involved in the electricity industry.

The share price improved recently, as noted in The O'Brien Column.

Telecom is coming back into favour in line with a stronger dollar, easing interest rates overseas, general renewed interest in telecommunications companies around the world and the local company's expansion.

Away from the big deal in telecommunications, Telecom has an interesting regional operational matter on the competition front.

Statements that fixed charges could drop in parts of Wellington and Hutt Valley to meet those of Saturn raise two issues: why they were more for the long time the company had an effective monopoly in the region and whether they will go up in the unlikely event of the competitor being "seen off the turf."

That was a minor matter in the company's total operations but, when considered alongside what the electricity companies did with their pricing packages, it showed what can happen when markets have more than one player.

Competition may affect utility companies' profitability and thus their share price growth to the detriment of investors, but the same investors benefit in their role as consumers of the companies' services.

Utility companies' share prices

	Company 22.1.01 (c)	Price 9.10.00 (c)	Price 30.12.99	% change 30.12.99 to 22.1.01	2000/01 High	2000/01 Low
Contact	280	258	335	-16.4	340	233
Horizon	930	800	770	20.8	931	600
Nat Gas	145	146	151^*	-4.0	171	120
Power Co	143	-	-	-	-	-
Trustpower	301	300	410	-26.6	508	265
United	790	715	590	32.9	810	560
Telecom	583	555	900	35.2	981	458

* Adjusted for share issue

Comments from our readers

No comments yet