Powerco shares rally as energy sector boils over

Friday 16th July 2004

Contact Energy might be the name on everyone's lips at the moment but another energy stock is also creating headlines.

New Plymouth-based Powerco has remained on investors' radar since local councils, which own a combined 53.7% stake, put their holdings on sale a few months ago.

The potential changes to ownership have already had an impact with the company revising its profit announcement down to $27.6 million from $55.1 million.

This is to offset potential tax liabilities arising from the change in shareholder continuity under tax law.

New Plymouth District Council has said little about a pending sale except that indicative bids, both local and overseas, are in and that the decision was influenced by talk of a merger between Powerco and gas pipelines company NGC.

It also said it wanted a premium of more than 25% on the stake's market price.

The decision to sell initially sent the shares higher before a drop in response to the revised profit announcement, even though the accounting changes are likely to have no effect on the company's forecasted earnings.

Some analysts say Powerco shares are fully valued and the company is also vulnerable to gas-sector regulation, inferring that the councils may struggle to get the price they are after.

The company is expected to produce a flat result in 2004/05.

A final decision on the sale likely to be worth around $400 million was expected in mid-August.

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