New Zealand Professional Investment Services Firm

Forsyth Barr

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Contact Energy<br>Expected 1H21 Result all but Confirmed</h2>
<div></div>
<p><strong>NEUTRAL</strong></p>
<p>Contact Energy's (CEN) December 2020 operating performance has confirmed a solid 1H21 EBITDAF result of ~NZ$246m, +NZ$25m more than 1H20. At the 1H21 result on 15 February we expect most focus to be on CEN's revised dividend guidance (we are forecasting the FY21 dividend to be 36cps, -3cps lower than FY20) and whether it will confirm the construction of its 150MW Tauhara geothermal project (we expect it will).&nbsp;</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/183/830/original/blobid1.png?1611212705" class="editor-image img-responsive" data-smartkarma-image-id="183830"></figure>
<div>
<h3>1H21 Expectations</h3>
</div>
<div id="m_-5073383922406126168iwrmo3">
<ul>
<li><strong>Reporting date</strong>:&nbsp;Monday, 15 February&nbsp;2021</li>
<li><strong>1H21 EBITDAF</strong>:&nbsp;NZ$246m, +NZ$25m (+11%) higher than 1H20</li>
<li><strong>1H21 dividend</strong>:&nbsp;15.0cps, -1cps (-6%) lower than 1H21</li>
</ul>
</div>
<div>
<h3>CEN's&nbsp;December 2020 operating statistics confirm 1H21 EBITDAF result</h3>
</div>
<div id="m_-5073383922406126168irwuj">
<p>Whilst we calculate December 2020 EBITDAF was NZ$31m, -NZ$3m lower than the&nbsp;pcp, it completes a solid 1H21. We calculate 1H21 EBITDAF was +NZ$25m (+11%) higher than 1H20 at NZ$246m. 1H21 was a story of two quarters, with 1Q21 EBITDAF +NZ$36m greater than 1Q20 whereas&nbsp;2Q21 was -NZ$10m lower than 2Q20. The driver of the movements is once again hydro generation. 1H21 hydro generation was +100GWh greater than 1H20, but 1Q21 was +210GWh greater and 2Q21 -110GWh less than their corresponding quarters.</p>
<p>Retail performance was solid. Whilst sales volumes have declined&nbsp;(mass market sales were down -2.5%)&nbsp;this was offset by increased retail prices&nbsp;such that we estimate the retail contribution was flat.</p>
</div>
<div>
<h3>Dividend guidance and&nbsp;Tauhara&nbsp;the key points of focus at the 1H21 result</h3>
</div>
<div id="m_-5073383922406126168iyj0l">
<p>The two key&nbsp;things of note we expect from the 1H21 result are&nbsp;1) revised dividend guidance now it has been confirmed NZAS is staying open to at least 31 December 2024 and 2) confirmation that&nbsp;CNE's&nbsp;Tauhara&nbsp;geothermal plant will get the go ahead to commence construction.&nbsp; Our interim dividend forecast is 15cps, -1cps lower than the 1H20 dividend. The reduced dividend has nothing to do with 1H21 earnings (which are going up) but is a function of our FY21 dividend forecast of 36cps and ensuring the 1H/2H split proportion is maintained. Our 36cps dividend forecast is -3cps lower than the FY20 dividend and reflects the expected underlying earnings decline with CEN now receiving less from NZAS.</p>
<p>We expect CEN to push go on its NZ$600m 150MW Tauhara geothermal project. We expect CEN to also indicate it will debt fund the project, as CEN has significant balance sheet capacity and can issue hybrid bonds (up to ~NZ$500m), half of which will be treated as equity by S&amp;P for credit rating purposes.</p>
</div>
<div>
<div>
<div><strong>Andrew Harvey-Green</strong></div>
<div><a href="mailto:andrew.harvey-green@forsythbarr.co.nz" target="_blank" rel="noopener">andrew.harvey-green@<wbr>forsythbarr.co.nz</a></div>
<div>+64 4 495 8185</div>
<div></div>
</div>
</div>
<div>
<div>
<div><strong>Scott Anderson</strong></div>
<div><a href="mailto:scott.anderson@forsythbarr.co.nz" target="_blank" rel="noopener">scott.anderson@forsythbarr.co.<wbr>nz</a></div>
<div>+64 4 914 2219</div>
</div>
</div>

Contact Energy Expected 1H21 Result all but Confirmed

NEUTRAL
Contact Energy's (CEN) December 2020 operating performance has confirmed a solid 1H21 EBITDAF result of ~NZ$246m, +NZ$25m more than 1H20. At the 1H21 result on 15 February we expect most focus to be on CEN's revised dividend guidance (we are forecasting the FY21 dividend to be 36cps, -3cps lower than FY20) and whether it will confirm the construction of its 150MW Tauhara geothermal project (we expect it will).&nbsp;


1H21 Expectations



Reporting date:&nbsp;Monday, 15 February&nbsp;2021
1H21 EBITDAF:&nbsp;NZ$246m, +NZ$25m (+11%) higher than 1H20
1H21 dividend:&nbsp;15.0cps, -1cps (-6%) lower than 1H21



CEN's&nbsp;December 2020 operating statistics confirm 1H21 EBITDAF result


Whilst we calculate December 2020 EBITDAF was NZ$31m, -NZ$3m lower than the&nbsp;pcp, it completes a solid 1H21. We calculate 1H21 EBITDAF was +NZ$25m (+11%) higher than 1H20 at NZ$246m. 1H21 was a story of two quarters, with 1Q21 EBITDAF +NZ$36m greater than 1Q20 whereas&nbsp;2Q21 was -NZ$10m lower than 2Q20. The driver of the movements is once again hydro generation. 1H21 hydro generation was +100GWh greater than 1H20, but 1Q21 was +210GWh greater and 2Q21 -110GWh less than their corresponding quarters.
Retail performance was solid. Whilst sales volumes have declined&nbsp;(mass market sales were down -2.5%)&nbsp;this was offset by increased retail prices&nbsp;such that we estimate the retail contribution was flat.


Dividend guidance and&nbsp;Tauhara&nbsp;the key points of focus at the 1H21 result


The two key&nbsp;things of note we expect from the 1H21 result are&nbsp;1) revised dividend guidance now it has been confirmed NZAS is staying open to at least 31 December 2024 and 2) confirmation that&nbsp;CNE's&nbsp;Tauhara&nbsp;geothermal plant will get the go ahead to commence construction.&nbsp; Our interim dividend forecast is 15cps, -1cps lower than the 1H20 dividend. The reduced dividend has nothing to do with 1H21 earnings (which are going up) but is a function of our FY21 dividend forecast of 36cps and ensuring the 1H/2H split proportion is maintained. Our 36cps dividend forecast is -3cps lower than the FY20 dividend and reflects the expected underlying earnings decline with CEN now receiving less from NZAS.
We expect CEN to push go on its NZ$600m 150MW Tauhara geothermal project. We expect CEN to also indicate it will debt fund the project, as CEN has significant balance sheet capacity and can issue hybrid bonds (up to ~NZ$500m), half of which will be treated as equity by S&amp;P for credit rating purposes.



Andrew Harvey-Green
andrew.harvey-green@forsythbarr.co.nz
+64 4 495 8185





Scott Anderson
scott.anderson@forsythbarr.co.nz
+64 4 914 2219



Contact Energy: Expected 1H21 Result All but Confirmed