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Re: [sharechat] Focus on CEN(Part1)

From: "Cristine Kerr" <>
Date: Wed, 28 Apr 2004 13:31:50 +1000

Hi Snoopy,
No time for reading and absorbing all your wonderful words at present but hoping to get to it later today.
----- Original Message -----
Sent: Wednesday, April 28, 2004 10:48 AM
Subject: [sharechat] Focus on CEN(Part1)

Contact Energy is the fifth 'arm' of my income portfolio.  It doesn't get
discussed much on this forum which is surprising given that at one
point more New Zealanders held shares in Contact Energy than any
other company.     So how to value it?    The short answer is 'with
difficulty'.   CEN is a simple (sic) energy business but in this case that

1/ An electricity generator and wholesaler
2/ An electricity retailer.
3/ A natural gas retailer.

One of the best ways to learn how to value a business is to get hold of
a Grant Samuel and Associates appraisal report on it.    These reports
are rare as they are only issued in times of a takeover or perhaps a
move by the existing controlling shareholder.   In mid 2001 Edison
Mission Energy, 40% shareholder of Contact, gave notice that they
wanted to increase their stake.   The conclusion of the Grant Samuel
Appraisal report on the Edison bid at between $2.90 and $3.25 per
share was as follows:

"The terms of the proposed Restricted Transfer are fair in so far as the
price received by those shareholders who sell to EME is likely to equal
or exceed the fair market value of a portfolio interest in Contact
Energy."     Translation:   'Shareholders who sell on market to EME will
get market price'.   Hmmm, well I don't need a highly paid consultant to
tell me that!

However, a rider in the recommendation of the independent director's
covering letter is telling:

"Opinions as to value can differ significantly with reference to the key
influences on Contact's value.  In particular these include views
regarding the likely future price of wholesale electricity and what is an
appropriate rate of return on the capital invested in the company's
business relative to the market as a whole."

Clearly with hindsight those who sold out around the $3 mark have
missed out on approximately an 80% gain in the last three years and
would be feeling fairly foolish.  It is clear to me that a good
understanding of the wholesale electricity market and given recent
asset revaluations, appropriate rates of return, are critical in valuing
Contact Energy.   That is what I plan to spend some time looking at.

Please feel free to join in.


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