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Vector may beat guidance for FY 2013, suffer 2014 earnings drop

Thursday 8th August 2013

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Vector, the electricity and gas lines company, is likely to beat its guidance in 2013 with a modest uplift in operating earnings but 2014 results will fall as regulated price cuts bite and it sells less cheap Kapuni gas.

The Auckland-based company said in February with the release of its first-half results that full-year earnings before interest, tax, depreciation and amortisation would be in line with 2012, when earnings were $627 million. At the time it flagged second-half headwinds including a 10 percent cut in electricity line prices from April 1 and reducing entitlements to Kapuni Gas at legacy prices.

Craigs Investment Partners analyst Grant Swanepoel is forecasting a 0.3 percent increase in EBITDA of $629.2 million for the 12 months ended June 30, based on improved earnings for gas transportation and its technology business, which includes its smart metering and fibre cable network, making up for a decline in earnings from electricity lines and gas wholesaling. Net profit may be little changed at $202 million.

Swanepoel said the focus of its results on Aug. 22 will be guidance for 2014, given it will reflect not only the April 1 lines price cut but also regulated gas transport cuts in October and "a steep decline" in cheap Kapuni gas. The Commerce Commission-imposed cuts may yet change again, depending on the results of a High Court merits review decision, which is now overdue.

He is forecasting a 9 percent drop in 2014 EBITDA to $570 million to reflect a 6 percent decline in earnings from electricity lines, a 22 percent drop in gas distribution, a 21 percent fall in gas wholesaling, offset by a 17 percent increase for its technology unit after its acquisition of Contact Energy's metering business.

Vector shares last traded at $2.70, having slipped 0.7 percent this year. Swanepoel, in his Aug. 8 report, raised the stock to 'buy' from 'hold' and lifted his 12-month price target to $2.95 given the potential for a positive outcome from the merits review.

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