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Daily ShareChat: Contact Energy

By Jenny Ruth

Sunday 6th March 2011 1 Comment

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 Jenny Ruth

Contact Energy's first-half results were sound but lacked spark, says Matt Henry, an analyst at Goldman Sachs & Partners.

While an estimated 7.5% growth in retail tariffs and a 26% rise in wholesale prices was positive, negatives included the loss of 13,000 retail customers, the new greenhouse gas emissions scheme cost Contact $19.5 million and its paid 11% more for gas.

"Contact continued to be impacted by the lack of flexibility in its gas supply and thermal generation fleet with take-or-pay gas left unutilised or sold at 'distressed prices' costing $23 million,” Henry says. The cost in the previous first-half was $19 million.

Its gas storage facility and peaker plant investments becoming available in the second half and the expiry of one gas contract on January 1 means the risk of distressed sales of gas is significantly diminished, “likely negating most, if not all, of the $23 million impact seen in the first half.”

Contact hasn't yet said specified the size of its planned rights issue to fund its about $623 million Te Mihi geothermal project but it will dilute earnings growth.

"Whilst we see potential long-term value in Contact via leverage to upward pressure on the electricity price, we do not expect the stock to outperform the market on a 12-month timeframe."

Recommendation: Hold.

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Comments from our readers

On 17 March 2011 at 1:32 pm Elizabeth Grindlay said:
Today I have received an offer for my contact shares of $7.60 from Carlyle Securities. This is a long way ahead of the market. What could be their reasoning for this offer?
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