Daily ShareChat: Contact Energy

Contact Energy's annual result, a 20% drop in operating profit to $445.3 million and a halving of bottom line profit to $117.5 million, was affected by extreme hydrological conditions but was broadly in line with guidance, says ABN Amro Craigs analyst Daniel Reynolds.

He says the company has cut its capital spending by more than $700 million over the next three years "which should alleviate any funding concerns the market may have." Contact has stripped out future wind projects and pushed back the rollout of additional geothermal capacity by a couple of years.

Reynolds says he now expects operating profit in the current year will rebound to $488.6 million, assuming hydrological conditions although his normalised net profit estimate is a much greater increase to $181.7 million because he assumes an increase in the proportion of capitalised interest costs.

He is forecasting operating profit will rise to $523.3 million in the year ending June 2011 while normalised net profit will come in at $184.1 million.

"While we are aware of a lack of obvious near-term catalysts to re-rate the stock, we continue to view Contact's medium-term prospects positively, given its sizeable renewable generation base," Reynolds says. He values the shares at $7.42.

BROKER CALL:  ABN Amro Craigs rate Contact Energy (NZX: CEN ) as buy.

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