Daily ShareChat: Contact Energy

By Jenny Ruth

Contact Energy's operating conditions firmed considerably in February and March with the average wholesale price rising above $75 a megawatt hour in February and to between $115 and $120 in March, says ASB Securities analyst David Boyce.

"Given Contact's growing long-generation position, this should assist earnings in the six months ending June," despite the outages at its Otahuhu B and Taranaki Combined Cycle power stations.

"Contact's unhedged generation has grown as retail electicity customer numbers have fallen - a formula for more volatile earnings, leveraged to the rising wholesale price," Boyce says.

Still, Contact's customer based remained stable over the current financial year and even grew marginally in January.

Boyce expects all electricity retailers will raise prices to recoup rising lines company charges, by 2% to 3% in most areas, and most will try to recoup the costs of the emissions trading scheme which begins July 1.

The imminent commissioning of Contact's Ahuroa and Stratford peaker stations will provide the company with gas and generation flexibility again which will allow it to make more efficient use of its gas and to take advantage of periods of elevated wholesale prices, he says.

Boyce has raised his forecast net profit for the year ending June by 1% to $173.8 million and his 2011 forecast by 17.3% to $180.3 million.

Investment rating: outperform.

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