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Contact's Te Mihi station delay offset by Cook Strait cable gains

Wednesday 23rd October 2013

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Contact Energy will only get six instead of an expected nine months' benefit from electricity generated at its new Te Mihi geothermal power station, but the delay is offset by gains for the generator-retailer from restoration of the Cook Strait cable to normal capacity.

In a note to clients, Deutsche Bank's Grant Swanepoel says Contact had a "great operational start" to the current financial year, but announcements on a new dividend policy are unlikely before the Wellington-headquartered company announces full-year results, in the third quarter of next year.

Deutsche continues to forecast earnings before interest, tax, depreciation and amortisation for the 2014 financial year of $576 million, up 6.5 percent on last year, but delayed commissioning of Te Mihi would shave about $11 million off that target.

Offsetting that is greater than anticipated benefits from the commissioning of Transpower's Pole 3, which has ended a period of some five years during which limits on the ability to send power between the North and South Islands played havoc with normal wholesale electricity market conditions.

"The achieved and expected further benefits from the DC link upgrade offset this commissioning delay downgrade and we leave our FY14 estimate unchanged at this stage," said Swanepoel, who expects Te Mihi to be commissioned during November.

Expected announcements on a new dividend policy at last week's Contact annual meeting were not forthcoming, he noted.

"In recent discussions with Dennis Barnes (Contact's chief executive), it is clear that he is in the camp of 'achieve the cash generation and then announce a "new" policy'. We now only expect a change in the payout at the full financial year announcement."

Contact shares fell 0.2 percent to $5.19 on the NZX today.

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