UPDATE: Contact shares rocket up on capital return plans

Monday 25th May 2015

Contact Energy shares jumped more than 14 percent after the energy generator and retailer said it had ditched plans for now to invest in geothermal schemes offshore and will increase returns to shareholders, including a special dividend.

Contact announced a 50 cents per share fully imputed special dividend, payable June 23, and a new ordinary dividend payout ratio of 100 percent of underlying earnings after tax. It also flagged the prospect of share buybacks if free cash flow allows larger distributions in the next few years, when Contact has no significant investment plans in New Zealand, where there is currently an over-supply of electricity generation.

The shares jumped 80 cents to $6.35 when trading opened on the NZX, having fallen 13 percent this year. They spiked as high as $7.30 in early February in anticipation of a capital return at the half-year results on Feb. 16, only to plunge when chief executive Dennis Barnes surprised investors by raising the prospect of offshore investment in offshore geothermal plants rather than the expected capital return.

"Contact has concluded there are no material investment opportunities at this time that would sufficiently reward shareholders and that the company can support increased distributions to shareholders," Barnes said in a statement to the NZX today. "To reflect the fact that Contact will have limited capital requirements in the near term, Contact's amended dividend policy will be to target an average ordinary dividend equivalent to approximately 100 percent of underlying earnings after tax."

The company had previously targeted an 80 percent payout.

"To the extent free cash flow exceeds the distributions outlined above, and absent new domestic growth opportunities or adverse market events, additional distributions will be made and are likely to take the form of share buybacks," Barnes said.

After initially saying a supplementary dividend of 8.8235 cents per share on the special dividend would compensate non-resident shareholders for their inability to access New Zealand imputation credits, the company said the supplementary payment was to account for non-resident withholding tax.

BusinessDesk.co.nz

Comments from our readers

No comments yet