Daily ShareChat: Contact Energy [Goldman Sachs JB Were]

By Jenny Ruth

Thursday 18th June 2009

Contact Energy lost 3,400 customers in April, bringing to 34,000, or 6.5% of its customer base, the number it has lost since October, says Matthew Henry at Goldman Sachs JB Were.

The key winner of customers has been Mercury, owned by the government's Mighty River Power, supported by its recent entry into Contact's two largest incumbencies, Hawkes Bay and Dunedin and the key catchment of Christchurch, he says.

Mercury's prices are 9% below Contact's in Dunedin and 3% lower in Hawkes Bay which is one reason Contact has frozen retail tariffs in those areas and in Christchurch until October 2010 in an attempt to stem the customer exodus.

Henry says wholesale market conditions are likely to continue to negatively impact on Contact with prices subdued by high South Island storage levels and adverse impacts from transmission constraints on the national grid, making retail customers relatively more attractive.

Because of these factors, he has lowered his earnings forecast for 2009 by 2.8% and for 2010 by 3.5%. "We do not expect the 2009 result to provide any relief from the negative sentiment currently weighing on the stock."

Henry downgraded his forecasts several days before Contact again downgraded its earnings guidance. It is now expecting underlying earnings after tax for the year ended June to be between 30% and 33% lower than the previous year. In January, the company had expected a 20% to 23% decline.

BROKER CALL: Goldman Sachs JB Were rate Contact Energy (NZX: CEN ) as hold.

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