By Jenny Ruth
Tuesday 8th March 2011
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Vector's earnings before interest, tax, depreciation and amortisation (EBITDA) of $317.7 million were nearly $8 million ahead of consensus forecasts but $4 million behind his forecast, says Grant Swanepoel, an analsyt at Craigs Investment Partners.
"The earnings beat came mainly in the core electricity lines business and the gas wholesale division (ex-tolling) having halted its profit decline," Swanepoel says.
Electricity customer growth dropped below 1% with fewer multi-dwellings being built. "The electricity usage per customer has fallen consistently in the four half years to June 2010. This latest half saw a recovery in this metric as usage per customer increase by 1%."
The company is forecasting full-year net profit will be between $181 million and $203 million. "If the second -half achieves flat underlying earnings .. Vector would get to a net profit f about $199 million," he says. Swanepoel has cut his forecast from $203 million to $197 million, reflecting higher depreciation charges, interest rates and tax rate.
Swanepoel values Vector shares at $2.68, assuming long-term growth of 1.5% a year and 7.35% weighted average cost of capital. The key risks to his valuation "are regulatory uncertainty (positive or negative) and the depletion of domestic gas reserves (negative). The regulated gas and electricity distribution and gas transmission profits are subject more to government decisions than demand dynamics."
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