Contact Energy - CEN Chart

[Checkmate]

Have a read of Jantar's post in the NWF thread for a bit on how the NZ market works:
https://www.sharetrader.co.nz/showth...l=1#post705981

You can get data on current NZ prices at:
https://www.electricityinfo.co.nz/

Transpower have data on generation, transmission and storage levels, and a weekly market summary with a bit of commentry on what factors are affecting NZ prices:
https://www.transpower.co.nz/power-system-live-data
https://www.transpower.co.nz/system-...arket-insights

This site is quite interesting too, it has prices in some other countries for comparison:
https://www.electricitymap.org

Thanks for the help guys!

[Snoopy]

Contact is committed to being a leading energy retailer in New Zealand, They look to bolt on adjacent sales lines, like piped or bottled gas, broadband, and the recently bought fully in house 'Simply Energy'. 'Simply Energy' can supply data analytics, hedging and advise on innovative generation projects, like waste to energy, advice to larger industry customers. Over FY2020, the 'big four' gentailers NZ generation and customer metrics are as follows:

	No. NZ Customers EOFY2020	NZ Power Station Electricity Generation (TWh)
Contact Energy	510k	8.5
Genesis Energy	435k	6.8
Mercury Energy	348k	6.3
Meridian Energy	324k	14.2

Contact, has the largest number of customers and generated the second largest amount of electricity over FY2020. So Contact is a 'top three' player on both counts.

Conclusion: Pass Test

SNOOPY

[Snoopy]

I have to admit I am not exactly worried either fish. All trends eventually end and if you just look at the NPAT figure you will see this has been on the up since FY2010.

However NPAT trends do not tell the story for long term investors, because a significant number of new shares have been issued over the last five years. The earnings per share trend is not quite as positive:

FY2008: $247.4m / 576.6m = 42.9cps
FY2009: $158.7m / 587.9m = 27.0cps
FY2010: $152.9m / 604.9m = 25.3cps
FY2011: $155.9m / 695.1m = 22.4cps
FY2012: $177.1m/ 718.7m = 24.6cps

The net profit values that I am using are the 'normalised profit' figures, which exclude 'one off asset sales' or 'other non-recurring profit hits'. The formulae I use for these 'earnings per share' calculations are:

NPAT = (1-T)x(EBITDAF - DA -I), where T is the company tax rate of 28%.

and ''Earnings Per Share' = NPAT / (No.shares on issue at EOFY)

FY2016: 0.72( $523m-$201m- $101m)/715.6m = $159m/ 715.5m = 22.2cps

FY2017: 0.72( $494m-$204m- $72m)/715.5m = $143m/ 715.5m = 19.9cps

FY2018 0.72( $481m-$215m- $84m)/716,3m = $131m/ 716.3m = 18.3cps

FY2019 0.72( $518m-$205m- $70m)/716.7m = $175m/ 716.7m = 24.4cps

FY2020 0.72( $451m-$220m- $55m)/718.1m = $127m/ 718.1m = 17.6cps

The 'eps' only went up once in five years!

Conclusion: Fail Test

SNOOPY

[Dlownz]

Are you going yo do this for all energy companies 🙂

[Snoopy]

Are you going yo do this for all energy companies 🙂

Nope! And I haven't even done one yet. But since I am giving you the formulae and showing you the method, you are more than welcome to roll out equivalent calcs for the others if you like!

SNOOPY

[Dlownz]

I'll look into it. But I already have my genesis shares so I'm pretty happy

[Snoopy]

I invite readers to look back on my posts 1822 and 1823. Thees posts show the 'hidden asset revaluations' that were brought into Contact's balance sheet prior to FY2010. Revaluations like this artificially reduce the return on shareholder equity going forwards, with the result that Contact's reported 'Return On Equity' is lower than the real figure. I have corrected for this effect by subtracting a proportion of the revalued power stations by equity ratio, from the declared value of shareholder equity.

Return On Equity = (Adjusted NPAT) / (Declared Equity adjusted for historic power station revaluations)

FY2016: $159m/ ($2,823m - 0.4995x$2,066m) = 8.9%

FY2017: $143m/ ($2,775m - 0.5093x$2,066m) = 8.3%

FY2018 $131m/ ($2,727m - 0.5135x$2,066m) = 7.9%

FY2019: $175m/ ($2,782m - 0.5616x$2,066m) = 10.8%

FY2020 $127m/ ($2,621m - 0.5353x$2,066m) = 8.4%

Despite my equity adjustments downwards, I haven't been able to calculate a return on equity higher than 15% for even one year.

Conclusion: Fail Test

[Snoopy]

I can't answer for Lizard, but notice the discussion on financial fundamentals is a bit light on CEN. So here is my thought of the day:

Margin = NPAT/sales

2008: $247.4m/ $2,757m = 8.8%
2009: $158.7m/ $2,200m = 7.2%
2010: $152.9m/ $2,143m = 7.1%
2011: $156.0m/ $2,209m = 7.1%
2012: $177.1m/ $2,679m = 6.6%

Doesn't make for a satisfying trend, does it?

discl: hold CEN

Net Profit Margin = (Adjusted NPAT) / (Revenue - Energy Transmission Costs)

FY2016: $159m/ ($2,163m - ($637m -$32m) ) = 10.2%

FY2017: $143m/ ($2,775m - ($632m - $32m) ) = 6.6%

FY2018 $131m/ ($2,727m - ($635m - $32m) ) = 6.2%

FY2019: $175m/ ($2,782m - ($609m - $32m) ) = 7.9%

FY2020 $127m/ ($2,621m - ($560m - $32m) ) = 6.1%

Notes

1/ $32m is my subtraction derived 'annual electricity metering cost' as calculated from the same FY2015 reporting year being reported differently in:

'Electricity transmission, distribution and levies" (AR2015 page 58). VERSES
"Electricity networks, transmission, levies and meter costs" (AR2016 p60)


Except for one blip in FY2019, I see an ever descending downward path. On this five year snapshot, there is no evidence that Contact energy has any price raising power.

Conclusion: Fail Test

SNOOPY

[Jantar]

…...Notes

1/ $32m is annual metering cost as disclosed in AR2016 page 58.

Except for one blip in FY2019, I see an ever descending downward path. On this five year snapshot, there is no evidence that Contact energy has any price raising power.

Conclusion: Fail Test

SNOOPY

Snoopy, I am not an accountant, but I do like reading your analysis on various companies. If there is one thing I do understand it is the electricity industry, yet some of your formulae here do leave me a bit confused. The first one is your treatment of the metering costs, which must be paid out to get the metered data, as if it were revenue, or money coming in.

The formula you use is not
Net Profit Margin = (Adjusted NPAT) / (Revenue - Energy Transmission Costs), but
Net Profit Margin = (Adjusted NPAT) / (Revenue - (Energy Transmission Costs-metering costs),
and even 1st year high school maths tells that the end result of this calculation is to add the metering costs on to revenue. Surely the correct formula would be
Net Profit Margin = (Adjusted NPAT) / (Revenue - Energy Transmission Costs - metering costs)

The second point I struggle with a bit is the treatment of revaluation of generation assets. Part of the issue here is how power stations and their plant are treated for devaluation purposes.

Thermal plant has a finite life of 25 - 30 years. Very few thermal generators ever go beyond 30 years. Genesis' Rankine units are a very good example of 4 units built in 1982 - 1986. Two of these units were shut down in 2007 when they were 25 years old, and put into a mothballed stage while the other two units were kept running. Over the years as the other two units have become uneconomic they have been swapped out and the mothballed units brought back online. Parts are now being cannabalised from one of those shut down units to keep the present two running units going, but even these are now close to the end of their time. So the value of a $300 M thermal unit after 30 years is $0. Easy to value.

Hydro Plant is the complete opposite. It almost never devalues, but actually appreciates in value over time. A $100 M hydro plant built in 1950, would have required $8 M spent in refurbishment in 1980 - 1990, and $64 M in refurbishment in 2010 - 2030. But today that station would have a value of around $900 M and probably another few hundred years of life to go.


Geothermal plant is different again. The individual units are valued in the same way as thermal units, and these units must be rebuilt completely every 25 - 30 years. But the station, steamfield, and associated infrastructure is a bit like hydro with a relatively long life. Not hundreds of years, but probably closer to 100 years. Waiarakei is valued a lot more today than when it was first built, but probably only has a maximum life of a further 20 - 30 years, taking it close to 100 years of usable time. This becomes very difficult to value at any point in time.

The net result of all the changes in asset valuations was indeed to reduce the return on equity for the years going forward, but showed a massive increase in return on equity for the year in which the revaluations took place. I know all the energy companies treat their revaluations differently. Perhaps there is a case for requiring them to do so at regular intervals like the retirement sector has to do with their property valuations.

[Snoopy]

Your treatment of the metering costs, which must be paid out to get the metered data, as if it were revenue, or money coming in.

The formula you use is not
Net Profit Margin = (Adjusted NPAT) / (Revenue - Energy Transmission Costs), but
Net Profit Margin = (Adjusted NPAT) / (Revenue - (Energy Transmission Costs-metering costs),
and even 1st year high school maths tells that the end result of this calculation is to add the metering costs on to revenue. Surely the correct formula would be
Net Profit Margin = (Adjusted NPAT) / (Revenue - Energy Transmission Costs - metering costs)

Hi Jantar. Just to fill in some background pre your first question,....

There was a move a few years ago to remove transmission costs from gentailer revenue, when calculating performance metrics. Why? Because transmission costs are not controlled by the gentailer. These charges are simply passed through from Transpower and the local lines company to the customer by the retailer. They are monopoly costs that the retailer can do nothing about. So it doesn't make sense to include them when you are trying to generate a statistic that represents the performance of the gentailer.

Between FY2015 and FY2016 there was a slight revision in how Contact's financial figures were reported. To derive my representative 'electricity metering costs', I compared reporting figures for FY2015, with ostensibly the same figures for FY2015 reported for year to year comparison purposes in FY2016.

On p60 in AR2016 there is an entry referring to FY2015: Electricity networks, transmission levies & meter costs $665m
On p58 in AR2015 there is an entry referring to FY2015: Electricity, transmission, distribution and levies: $633m

The difference between the two is $32m, which I took as indicative of electricity meter costs. If you look further down on p58 in AR2015 you will see an entry for 'meter costs' of $36m. This is slightly different to my calculated figure. I explain the difference as being due to the higher figure also including retail gas metering costs,. which are distinct from electricity gentailer costs. Metering costs are no longer disclosed by Contact. So I am taking this $32m figure as indicative of electricity metering costs going forwards from FY2015.

Moving back to FY2016, p60 of FY2016 contains the following entry: Electricity networks, transmission levies & meter costs $637m

In my calculation for FY2016 to subtract the 'transmission revenue' from the 'total revenue' ( $2,163m - ($637m -$32m) = $1,558m ) you are quite correct Jantar in observing that the way the mathematics is expressed, I am adding the meter revenue back onto the total revenue. This is what I want to do because in general, metering revenue is under the control of the gentailer, not the lines companies.

SNOOPY