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).

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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Contact Energy</h2>
Sluggish Start to FY20 — 1Q20 Operating Statistics
It has not been a great start to FY20 for Contact Energy (CEN), with below average hydro generation lifting the average cost of generation. We estimate 1Q20 EBITDAF was $113m, -$23m lower than the pcp (on a continuing operation basis). We have cut our FY20 EBITDAF forecast -$21m to $467m.
What’s changed?
<ul>
<li>Earnings: FY20 EBITDAF cut -$21m to $467m</li>
<li>Target Price: Unchanged at $8.22</li>
<li>Rating: NEUTRAL rating retained</li>
</ul>
Lack of hydro hurting earnings
1Q20 hydro generation totalled 820GWh, -7% lower than the pcp, with September hydro generation particularly weak, -28% down on the pcp and -40% below average. Thermal generation was up +9% meaning the cost of generation was +$26m more than 1Q19 (although part of the cost increase relates to CEN Ahuroa gas storage facility lease costs).
We calculate that 1Q20 EBITDAF was $113m, -$23m lower than the pcp on a continuing earnings basis (-$35m lower including 1Q19 LPG earnings).
Forecast changes reflect poor start to FY20 and weak hydro storage
The poor start to FY20 and hydro storage well below average (EnergyLink is reporting CEN’s current hydro storage at 143GWh, -36% below average following a positive week) has led to our -$21m FY20 EBITDAF cut to $467m. We also note that October/November 2018 were CEN’s best months in FY19 (by a considerable margin), so CEN’s FY20 performance vs. pcp is going to get worse in the short-term.
We have only made minor changes to our long-term forecasts; hence, there is no change to our $8.22 target price.&nbsp;
<div class="content-highlight">
Investment View
Our rating is NEUTRAL. We view CEN as fairly valued. It offers a high degree of earnings and therefore dividend certainty but more limited growth. Whilst the current interest rate environment is supportive of elevated share prices, a lift in interest rates poses downside risk.&nbsp;
</div>
<a target="_blank"></a><a target="_blank">Andrew Harvey-Green</a>
<a target="_blank">andrew.harvey-green@forsythbarr.co.nz</a>
<a target="_blank">+64 4 495 8185</a>

Contact Energy
Sluggish Start to FY20 — 1Q20 Operating Statistics
It has not been a great start to FY20 for Contact Energy (CEN), with below average hydro generation lifting the average cost of generation. We estimate 1Q20 EBITDAF was $113m, -$23m lower than the pcp (on a continuing operation basis). We have cut our FY20 EBITDAF forecast -$21m to $467m.
What’s changed?

Earnings: FY20 EBITDAF cut -$21m to $467m
Target Price: Unchanged at $8.22
Rating: NEUTRAL rating retained

Lack of hydro hurting earnings
1Q20 hydro generation totalled 820GWh, -7% lower than the pcp, with September hydro generation particularly weak, -28% down on the pcp and -40% below average. Thermal generation was up +9% meaning the cost of generation was +$26m more than 1Q19 (although part of the cost increase relates to CEN Ahuroa gas storage facility lease costs).
We calculate that 1Q20 EBITDAF was $113m, -$23m lower than the pcp on a continuing earnings basis (-$35m lower including 1Q19 LPG earnings).
Forecast changes reflect poor start to FY20 and weak hydro storage
The poor start to FY20 and hydro storage well below average (EnergyLink is reporting CEN’s current hydro storage at 143GWh, -36% below average following a positive week) has led to our -$21m FY20 EBITDAF cut to $467m. We also note that October/November 2018 were CEN’s best months in FY19 (by a considerable margin), so CEN’s FY20 performance vs. pcp is going to get worse in the short-term.
We have only made minor changes to our long-term forecasts; hence, there is no change to our $8.22 target price.&nbsp;

Investment View
Our rating is NEUTRAL. We view CEN as fairly valued. It offers a high degree of earnings and therefore dividend certainty but more limited growth. Whilst the current interest rate environment is supportive of elevated share prices, a lift in interest rates poses downside risk.&nbsp;

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

Contact Energy: Sluggish Start to FY20 — 1Q20 Operating Statistics