By Jenny Ruth
Sunday 13th February 2011
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Contact Energy's first-half result is likely to beat its guidance, even though its retail business is struggling, says Grant Swanepoel at Deutsche Bank.
The company has forecast its first-half earnings before interest, tax, depreciation and amortisation (EBITDA) would be about $203 million. Swanepoel says a sustained pickup in generation hedging means he expects EBITDA to be closer to $219 million.
Contact's December operational data showing its retail margin fell to negative 8% "was predictable as the retail division takes on extra costs when wholesale prices are high," he says.
He calculates the retail contribution fell from $2 million in December 2009 to negative $8 million in December 2010.
"To keep the retail margin in context, the retail segment contributed less than 15% to full-year 2010's EBITDA."
And on the generation side, despite the Otahuhu station being down for most of the month, Contact produced 138 gigawatt hours of unhedged generation. Combined with the high wholesale prices, Swanepoel estimates that led to an unhedged profit of $12 million compared with $4 million in the previous December.
As well, "we estimate that the hedged generation profitability in December was a few million ahead of the previous (December)."
Swanepoel has a $7.29 12-month target for Contact's shares.
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