Daily ShareChat: Contact

By Jenny Ruth

Contact Energy management's comments about the outlook compensate for the company's disappointing earnings for the year ended June, says Craigs Investment Partners.

Contact reported annual earnings before interest, tax, depreciation and amortisation (EBITDA) of $427 million, $24 million lower than Craigs' forecast.

"The lower than estimate was due to higher than anticipated gas costs and a negative regional sale mix swing," Craigs says.

Its take-or-pay gas contracts meant Contact couldn't use 3.5 petajoules and a similar situation is likely to be repeated in the six months ending December, it says. However, earnings should recover in the six months ending June 2011.

"In a rare move, the company has highlighted how it could perform with a more flexible generation portfolio under wet and dry conditions," Craigs says.

"This has been viewed positively and supports our hypothesis that Contact is on its way to better profitability."

Still, Craigs has lowered its forecasts on the back of the results. It now expects EBITDA in the year ending June 2011 will be $480 million, down from its previous $496 million forecast, and will be $554 million in the following year, down from $579 previously.

It has also cut its valuation of the stock to $6.96 from $7.37 previously.

Recommendation: Buy.

Daily ShareChat articles report how the main experts in the market might view a certain share and we provide this commentary as a useful resource for investors. Content on this site does not in any way constitute a recommendation to buy, hold or sell any particular share. Investors should always seek professional advice before making any investment decisions.

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