Investors may welcome higher power prices

By Peter V O'Brien

Friday 2nd August 2002

Electricity generating and distribution companies' share price gains did not match the operators' off-market action over the past six months.

The table shows the listed companies' share prices on Monday, corresponding figures on January 18, percentage changes between the two dates, the year's highs and lows and gross dividend yields on July 26.

Horizon Energy Distribution was the best performer over the period, improving 19% on top of a 50% gain in the year ended January 18.

United Networks rose 12.5% but part of the gain could be related to the decision of the company's biggest shareholder to quit its holding.

US-based Aquila Inc owns 70% of United through the US group's wholly owned subsidiary UtiliCorp NZ. Aquila has a debt problem, a common ailment these days in US corporations.

The other companies in the table had a modest price improvement (TrustPower) or small declines (Contact Energy, Natural Gas and Powerco).

Some of them are probably looking at United Networks' assets or other potential acquisitions to expand their energy interests.

Powerco, for example, said in May it was planning to expand electricity service operations in Australia. It was buying three field service businesses based in southeast Queensland for about $A7.5 million.

The business would be amalgamated with Powerco's existing Australian operations, based on Brisbane company S & D Contracting another field services operation.

Contact Energy is looking at opportunities to expand in Australia, where it has an investment with its parent, Edison Mission Energy, in a 300MW power plant in Victoria.

Many of Contact's smaller shareholders were upset at that move, which was made without consulting minorities.

The company did not require shareholder approval, because the deal was less than 5% of Contact's shareholders' funds, although there was a hefty $A66 million during the construction period.

Contact has continued with planning an integrated industrial plant at Bundaberg, southeast Queensland. The annual report for 2001 said an environmental impact study was successfully completed and negotiations were commenced with potential partners for a pulp mill.

It seems some of the bigger New Zealand companies found this country too small for their growth ambitions.

Powerco chief executive Steven Boulton indicated the industry's probable thinking when he said (in relation to his group's Queensland expansion) that Queensland's customer base alone was bigger than the entire New Zealand electricity distribution market.

The company's acquisitions in Queensland were not directly involved in power generation or distribution.

They provided construction and maintenance services to electricity network owners, property developers and large business customers.

Powerco had identified substantial opportunities for more growth in southeast Queensland, because there was a growing trend among network owners toward outsourcing maintenance and construction activities.

Southeast Queensland comprises the region from Brisbane through the Sunshine and Gold Coasts down to the New South Wales border. It has a substantial population base.

Electricity companies' profit in recent accounting periods depended on customer base locations, the business mix (generation, distribution or both), other activities including the gas interests of Contact, Natural Gas Corporation and United Networks, and how last winter's extraordinary wholesale electricity prices affected them.

Figures that included last winter's impact were no guide to future profitability.

TrustPower reported on Monday for the three months ended June. The company earned $9.9 million, compared with a $2.9 million loss in the corresponding period of the previous year.

Those results can be compared with results for the years ended March 2002 and 2001.

TrustPower earned $1.29 million in 2001/02 and $23.48 million in the previous year, the former figure including a pre-tax $6.74 million gain from the sale of about 20,000 customers to Mighty River Power.

The pre-tax operating loss before unusual items and minorities in 2002 was $5.17 million against a $33.7 million profit in the previous year.

It is an open question what will happen in the current year, particularly for those companies with retail interests that have or are planning to increase prices.

Last winter's wholesale price crisis may have passed but retailers reckon they need higher retail prices to overcome the revenue disruption and to allow for future costs.

Consumers may be unhappy with that approach but shareholders would approve, particularly when share prices help up well in the recent market turmoil.

Some of the listed groups are also attractive investments in relation to their gross dividend yields and status as defensive stocks.

ELECTRICITY COMPANIES' SHARE PRICES

Company	Price 29.7.02	Price 18.1.02	Change 18.1.02 to 29.7.02	2002 high	2002 low	Gross div yld
Contact	$3.82	$3.85	-0.8%	$4.18	$3.65	7.4%
Horizon	$3.32	$2.79 *	+19%	$3.50 *	$2.55 *	11.7%
Natural Gas	$1.15	$1.22	-5.7%	$1.32	$1.05	2.6%
Powerco	$1.85	$1.90	-2.6%	$2.02	$1.75	10.3%
TrustPower	$3.40	$3.31	+2.7%	$3.55	$3.10	4.7%
United	$9.00	$8.00	+12.5%	$9.20	$7.60	5.8%

*Adjusted for 5:1 share split

Comments from our readers

No comments yet