By Jenny Ruth
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Tuesday 19th April 2011 |
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The Commerce Commission shocked lines companies, including Vector, with its flip flop on the regulatory goalposts, says Andrew Harvey-Green, an analyst at Forsyth Barr.
"Just as we though regulatory uncertainty was fading as a concern for Vector, it has come back with a vengeance," Harvey-Green says.
"Regulatory uncertainty is now back at the forefront of investor thinking and is unlikely to be eased significantly until after the merits review process is concluded, which could be two to three years away," he says.
The effect of the Commerce Commission's change in thinking is that, under its previous guidelines, firms were able to earn about an 8.7% return on assets after tax before any price adjustment was made but now the allowable rate of return is only 7.7%, Harvey-Green says.
"Investors can have no confidence going forward that more surprises are not around the corner."
The year ending June 2013 is when the decision's full effects will be felt and Harvey-Green says he has cut his forecast reported net profit for Vector by 13.6% from $195.3 million to $168.8 million as a result. He cut his 2012 forecast 3.1% to $182.8 million.
He has also cut his valuation of the stock by 36 cents to $2.24.
Recommendation: Reduce.
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