Daily ShareChat: TrustPower

By Jenny Ruth

TrustPower will benefit from anticipated further increases in electricity prices because the tight supply versus demand situation will ensure prices rise to meet the cost of new generation, says McDouall Stuart.

TrustPower currently produces more than 59% of its customers' electricity needs from its portfolio of low marginal cost hydro and wind generation assets with the balance of customer demand purchased under contracts and on-sold at small margins.

"Large fluctuations in wholesale prices can impact earnings." Because the company's total generation is committed to its retail customer base, earnings are sensitive to retail electricity pricing, it says.

"TrustPower has the balance sheet strength to pursue further hydro and wind projects," McDouall Stuart says. "Currently the company has projects under various stages of development (which) will eventually provide TrustPower with self-sufficiency to satisfy its mass-market customers."

It is expecting TrustPower's net profit will dip from the $105.1 million it reported earlier this month for the year ended March to $100.1 million in the year ending March 2010 before rising to $107.5 million the following year.

The 2010 forecast reflects a contraction in its EBIT (earnings before interest and tax) profit margin from 28.2% to 26.6% while sales are expected to fall from $785.4 million in 2009 to $764.1 million in 2010.

The broker values TrustPower shares at $7.60 compared with its $7.85 share price on Tuesday.

BROKER CALL:  McDouall Stuart rates TrustPower (NZX: TPW ) as HOLD

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