May Performance Wasn't Too Bad; Contact Looks Attractive

Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

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Equity Bottom-Up

Contact Energy's first-half fiscal 2017 result was in line with expectations, with EBITDA up 3% to NZD 261 million and net income up 12% to NZD 82 million. However, January operating statistics, also released today, were strong and suggest EBITDA for the financial year to date (seven months) is up around 5%. We make minor upgrades to our forecasts, and increase our fair value estimate by 4% to NZD 5.80 per share.At the current price of NZD 4.80, we believe Contact is attractive, offering a 5.4% mostly imputed dividend yield. Net debt/EBITDA should fall to comfortable levels this financial year as earnings rise and as surplus free cash flow is used to reduce debt, likely allowing dividends to increase from fiscal 2018 onwards. Further adding to the appeal for investors, imputation should steadily increase to 100% over the next few years. There is no change to our opinion that Contact is a high-quality company, warranting a narrow economic moat rating.Analyst: Adrian Atkins

Contact Energy's first-half fiscal 2017 result was in line with expectations, with EBITDA up 3% to NZD 261 million and net income up 12% to NZD 82 million. However, January operating statistics, also released today, were strong and suggest EBITDA for the financial year to date (seven months) is up around 5%. We make minor upgrades to our forecasts, and increase our fair value estimate by 4% to NZD 5.80 per share.At the current price of NZD 4.80, we believe Contact is attractive, offering a 5.4% mostly imputed dividend yield. Net debt/EBITDA should fall to comfortable levels this financial year as earnings rise and as surplus free cash flow is used to reduce debt, likely allowing dividends to increase from fiscal 2018 onwards. Further adding to the appeal for investors, imputation should steadily increase to 100% over the next few years. There is no change to our opinion that Contact is a high-quality company, warranting a narrow economic moat rating.Analyst: Adrian Atkins

Solid First Half for Contact; We Lift Our Valuation to NZD 5.80