Infratil's recent presentation on its Infratil Energy Australia (IEA) division highlighted the challenges ahead to grow its Lumo Energy retail business, says Rob Bode, an analyst at First NZ Capital.
"In the near term, Lumo Energy is spending heavily to resume growth in the highly competitive Victorian market," Bode says. That will impact on Lumo's earnings until customer growth resumes.
"Lower-than-anticipated customer numbers and higher operating costs have lowered our earnings estimates for Lumo," he says.
Nevertheless, his A$345 million (NZ$465.5 million) valuation of IEA hasn't changed materially. "This is mainly because we had already adopted a fairly conservative value for Lumo Energy," Bode says.
While he has pared back expectations for near-term earnings, "the long-term potential for this business to grow remains undiminished," he says.
"Further industry consolidation is likely to enhance growth opportunities and available returns (as a rationally competitive market develops)."
IEA's long-term objective is to gain 10% of the retail electricity and gas markets in the four Australian states of Victoria, New South Wales, South Australia and Queensland. Bode says the main improvements in Infratil's performance in the year ended March 31 came from IEA and Greenstone Energy. "In the absence of bolt-on acquisitions, neither of these businesses is likely to growth earnings in full-year 2012 but both should see earnings re-accelerate in full-year 2013."
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