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Equity Bottom-Up

Contact Energy has a narrow economic moat, which reflects the oligopolistic structure of New Zealand's electricity market. The firm generates a fourth of the country's electricity and supplies power to more than 400,000 residential customers. Being a net generator, Contact Energy benefits from high spot prices. These typically occur during a dry year when lake levels are below average. The establishment of the low-cost geothermal plant has lowered Contact Energy's cost of generation and improved…

Contact Energy is having a good fiscal 2019, with earnings tracking comfortably above last year. We increase our fair value estimate for Contact Energy 4% to NZD 6.50 per share on the time value of money and slightly improved medium-term expectations for electricity prices as market conditions continue to improve. Storage levels in the North Island remain low, at around 60% of mean, allowing South Island-based Contact to benefit from elevated electricity prices. Contact's hydro generation assets…

Narrow-moat-rated Contact Energy had a strong first-half fiscal 2019 with underlying EBITDA up 28% to NZD 278 million, underlying NPAT more than doubling to NZD 97 million, and interim dividends up 23% to NZD 16 cents per share. Dividend guidance has been increased to NZD 39 cents per share for the full year, from NZD 35 cents per share, based on a new dividend policy of paying out 100% of operating free cash flow. We increase our fiscal 2019 EBITDA forecast by 1% to NZD 544 million, including…

Conditions are extremely favourable for narrow-moat Contact Energy at present, with low lake levels and gas supply outages causing wholesale electricity prices to spike. Fortunately, the issues causing prices to spike haven't impacted Contact to a material extent and it has increased electricity generation to take advantage of high prices. We estimate EBITDA in the first four months of fiscal 2019 in the core integrated energy division is up nearly 30% on the previous corresponding period, and…

Narrow-moat-rated Contact Energy’s fiscal 2018 result was largely in line with expectations, given good monthly disclosure. EBITDA slipped 4% to NZD 481 million, and underlying net profit fell 8% to NZD 130 million. The dry spell that marred the second half of fiscal 2017 continued into fiscal 2018 before rainfall improved in recent months. With storage levels still well below average, we expect headwinds in hydro generation to persist in the short term. However, as weather conditions normalise…

New Zealand

Contact Energy Limited is a diversified and integrated energy company which focuses on the generation of electricity and the sale of electricity and gas in New Zealand.

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