Contact Energy - CEN Chart

[fish]

Drongo...I would like to believe that you are right....if one looks at the chart (5 years)....we have been here before....My basic reason for hanging is partly emotional (dum I know)...2...no one is going to build another dam soon...and the divs are meant to be going up.

Do you remember the great Waitaki dam(s) debate...i.e. divert the river blah blah....Some folk at the time said that the extra energy provided by this series of dams (6?) would only suffice for a period of 3 years of current NZ demand...i.e.insinuating huge geographical consequences for a relatively short period of temporay gain....

HOW WRONG these bofins appear to have been.....who would have thought that NZ INC would have an over supply of energy !!!!!!!!

Me thinks that (the GFC acknowledged) all those energy efficient white appliances,bulbs et al have made an influence....but huh you might say what about Heatpumps...

I often wonder if a "strengthening economy" will indeed increased returns for companies as CEN...BUt I also understand that if a "company" wishes to be more efficient ...they actually will save money.....

What am I saying...not sure really ...again....cheers

You can never be sure
CEN are doing just the right things.
Demand is actualy up
As I write cen are generating surplus electricity with wholesale power prices at 280 -their most expensive generation is gas thermal at 40-so profit on this surplus has gone up from around 20 to 200 .
As we get drier and little wind i cn see power prices shooting up much further .Lake inflows are now the lowest ever.
I dont have the time to research all this acurately.
It would be really helpful if someone with more time and financial aptitude than me could analyse what this all means for CEN ,trustpower and mighty river .

[iceman]

Today ANZ shares website shows CEN having gone XD and all buys having dried up. This is from the Half Year report:

INTERIM DISTRIBUTION* 11.0 CPS
*In the form of a cash dividend.

Record date: 08/03/2013
Dividend Payment Date: 26/03/2013 "

It shows record date as 8 March. What am I missing here ?

[CJ]

Today ANZ shares website shows CEN having gone XD and all buys having dried up. This is from the Half Year report:

INTERIM DISTRIBUTION* 11.0 CPS
*In the form of a cash dividend.

Record date: 08/03/2013
Dividend Payment Date: 26/03/2013 "

It shows record date as 8 March. What am I missing here ?Price hasn't dropped so assume not exDiv. I'd trust the half year report, not ANZ.

[Silverlight]

It is ex today, record date is 8 march, if you buy the shares today you don't settle until Monday (T+3), so no dividend for you.

[iceman]

It is ex today, record date is 8 march, if you buy the shares today you don't settle until Monday (T+3), so no dividend for you.

Thanks Silverlight. I didn't know it works like that. Oh yes I am looking forward to a nice little divie. Have happily held CEN for a long time and have no intention of selling.

[CJ]

Price hasn't dropped so assume not exDiv. I'd trust the half year report, not ANZ.I stand corrected. No trades for ages this morning.

[Snoopy]

Around 100,000 NZers registered for the MRP float yesterday. At that rate by 22nd March closing date for preregistrations, 1.7 million New Zealanders will be going for the shares. We are looking at something an order of magnitude higher than when Contact floated all those years ago. MRP is a fine company, but I have to ask at what price? I am wondering now if the smart money might be better to just buy Contact on the market while it is sold down by other investors keen to grab their slice of MRP at any price?

SNOOPY

[CJ]

Snoopy - I don't think you can extrapolate like that. It should beat the ~250k that invested in CEN at iPO.

Have had the same thoughts re buying in the pre IPO downturn. If only I wasn't 100% invested. Thinking of selling down to buy up.

[Snoopy]

Snoopy - I don't think you can extrapolate like that. It should beat the ~250k that invested in CEN at iPO.

Have had the same thoughts re buying in the pre IPO downturn. If only I wasn't 100% invested. Thinking of selling down to buy up.

Yes perhaps my extrapolation was a little high. The point I was making was, Contact has a lot of hydro assets. In broad brush terms it is a very similar company to MRP. Of course we do not know the projected price for MRP yet. But if it were noticeably more than CEN in PE terms, because of the high demand for shares, would it make sense to invest in MRP? In the short term yes as all of those index funds would have to buy MRP share at any price. But six months down the track, would you as an MRP investor still be looking so clever?

SNOOPY

[fish]

Around 100,000 NZers registered for the MRP float yesterday. At that rate by 22nd March closing date for preregistrations, 1.7 million New Zealanders will be going for the shares. We are looking at something an order of magnitude higher than when Contact floated all those years ago. MRP is a fine company, but I have to ask at what price? I am wondering now if the smart money might be better to just buy Contact on the market while it is sold down by other investors keen to grab their slice of MRP at any price?

SNOOPY

I have registered-as has my family but will not decide whether to buy until I find out more about how positioned they are to cope with a drought .

I dont agree that they are similar to contact . Contact have a minority of hydrogeneration and 2 big flexible gas power stations -near new plymouth and auckland. Contact should be currently making a killing out of high prices .MRP must be taking a hammering

[troyvdh]

Thankyou snoopy...I was thinking of posting something similar i.e. a comparison between CEN and MRP....but thought that folk would be doing the comparison...CEN ..what 3.8.B.....MRP ...3.2B....(I could be wrong).....yes there is some euthoria about MRP and probably quite rightfully so..but perhaps for the wrong reason...i.e prospect of instant gain...

..as i have said before I believe the cost to rebuild the Clyde dam would be about 2B....that is of course if they were allowed to....the same applies to any other entity planning on building another dam....any where..it will be interesting to see the details of the offer..and indeed comparisons made between CEN and MRP...

cheers troy

[CJ]

Yes perhaps my extrapolation was a little high. The point I was making was, Contact has a lot of hydro assets. In broad brush terms it is a very similar company to MRP. Of course we do not know the projected price for MRP yet. But if it were noticeably more than CEN in PE terms, because of the high demand for shares, would it make sense to invest in MRP? In the short term yes as all of those index funds would have to buy MRP share at any price. But six months down the track, would you as an MRP investor still be looking so clever?

SNOOPYUntility stocks:
CEN/TPW P/e of about 17-18 (best comparable)
IFT/AIA P/e of about 22-24
TEL/CNU P/e of about 10-14 (regulated)

MRP - I would be looking at no more than 17-18 for long term investment. May still go for stag if more.

[troyvdh]

Cheers CJ..for some clarity....KISS has alot going for it....

[gv1]

Stock gone XD, ASB securites shows XD as of today but I have noticed price increase for this stock. Can someone please advise, what happens if stock sold today.

[iceman]

Stock gone XD, ASB securites shows XD as of today but I have noticed price increase for this stock. Can someone please advise, what happens if stock sold today.

It is XD and anyone selling now will still get the dividend

[gv1]

Thanks Iceman

[iceman]

But why would you want to sell this great utility stock, which is likely to increase dividend payouts in the very near future ?

[fish]

Nobody with any sense should sell at the moment .
I sold out 5 years ago at $10 and starting buying again in recent times -now my second biggest holding and currently buying so hoping it will become my biggest holding .
They have the best blend of generation and i believe this will be proven in the next few weeks-just watch wholesale power prices on witsfreetoair .
Mighty river power depends on waikato/taupo hydrogeneration and it just isnt going to happen to the normal extent for sometime-could be many months.They will be buying from contact on the wholesale market at prices 10 times plus last year.
But I wish somebody else could confirm-or refute my view

[gv1]

But why would you want to sell this great utility stock, which is likely to increase dividend payouts in the very near future ?

Just wanted to know, as the SP was accerlating when it was XD. Normally price drops, looked bit odd. ASB securites listed 6 March as XD and then listed 8 march as record date. Maybe made me ask some odd questions. Thanks !!

[CJ]

Nobody with any sense should sell at the moment .

Impossible to tell without the prospectus and price range but...

What effect will MRP have on the share price. Should we sell now and buy back in when the price drops as people cash out for the IPO.?

[iceman]

Impossible to tell without the prospectus and price range but...

What effect will MRP have on the share price. Should we sell now and buy back in when the price drops as people cash out for the IPO.?

I have had same thoughts CJ but am not convinced people will necessarily sell out of CEN anymore than any other shares to invest in MRP. I for one will not sell CEN but intend on buying MRP if prospectus is acceptable.

[macduffy]

As others have pointed out, the current dry conditions affect MRP disproportionately, compared to the likes of CEN, at least in the short term. It may be that this has highlighted CEN's attractiveness - and is benefitting the SP.

[CJ]

I have had same thoughts CJ but am not convinced people will necessarily sell out of CEN anymore than any other shares to invest in MRP. I for one will not sell CEN but intend on buying MRP if prospectus is acceptable.There was a lot of selling pressure when News Corp dumped its SkyTV shares. To be fair, no one had any notice (unless they read this forum) so wouldn't have been building up a stock pile of cash.

But with the amount of big IPO's rumoured for this year, I do wonder if existing solid stocks will be held back as a result. I'm not concerned as I hold for the long term but will probably need to regig my portofolio a bit depending on what the IPO's look like.

[Arbitrage]

Contact shares are moving upwards. Just when I thought investors would be selling to raise cash for the MRP float. Maybe CEN is seen as a better NZ energy based share than MRP?

[777]

Contact shares are moving upwards. Just when I thought investors would be selling to raise cash for the MRP float. Maybe CEN is seen as a better NZ energy based share than MRP?

How much really has to be sold to fund the MRP float. There has been enough time for the mums and dads to save up $2000-$3000 to buy the maximum they are likely to get. All the funds will have been accumulating cash for the event. And why would you sell CEN to buy what is coming on offer?

[peat]

And why would you sell CEN to buy what is coming on offer?Because to own both might create an imbalanced portfolio that is overexposed to utilities, to power generation and esp hydro power generation.

[Arbitrage]

That is right. It is about keeping a balanced portfolio.

[fish]

Because to own both might create an imbalanced portfolio that is overexposed to utilities, to power generation and esp hydro power generation.

!/3 of my total investment portfolio is in CEN. My account was credited with a generous dividend yesterday .The last thing I would now consider spending that dividend on is MRP even though i originally registered my interest .
This drought has shown that MRP doesnt have a balanced generation-being 2/3 waikato hydro based.

[777]

In reality though what % of investors actually balance their portfolios. My guess is that a lot of people, myself included, have decided not to bother with MRP and are investing/topping up in CEN. $2000 worth of shares is just a waste of time for a lot of people.

[Arbitrage]

I was thinking more of the fund managers balancing their portfolios in anticipation of a large allocation. They are the ones most likely to influence the share price of company the size of CEN.

[troyvdh]

I thought this whole issue i.e. CEN vs MRP...being kind-off equal total value wise..et al has/is being thrashed out on the MRP site....some good stuff there....cheers

[iced]

For a fully diversified portfolio, wouldn't one want some degree of diversification within sectors? I guess this would probably apply more to larger investors..

Regardless of pricing or fundamentals etc, wouldn't owning both CEN and MRP offer exposure to utilities/power generation, but smooth out performance between years with high rainfall / drought years?

[CJ]

For a fully diversified portfolio, wouldn't one want some degree of diversification within sectors? I guess this would probably apply more to larger investors..

Regardless of pricing or fundamentals etc, wouldn't owning both CEN and MRP offer exposure to utilities/power generation, but smooth out performance between years with high rainfall / drought years?If we had had floods in the north Island instead of drought, I think people would be buy MRP, sell CEN.

[fish]

If we had had floods in the north Island instead of drought, I think people would be buy MRP, sell CEN.

That would be a big mistake.
Sell both and buy fletcher building would be good advice

[Arbitrage]

In a flat electricity market I suppose it would be a more balanced approach to buy both if there is a see saw effect on returns between the two companies. Lets not forget the potential for Origin to go for the full takeover...

[RTM]

I wonder if someone can help me. Considering buying some Contact shares. Will probably hold indefinitely, so am trying to understand what the dividend looks like. Looking at NZX site I see this info:

Ex Dividend Period Amount Supp. Imputation Payable Currency
06-Mar-13 Interim 11.000c 1.941c 4.714c 26-Mar-13 NZD
24-Aug-12 Final 12.000c 2.118c 5.143c 21-Sep-12 NZD
02-Mar-12 Interim 11.000c 1.941c 4.714c 30-Mar-12 NZD
01-Sep-11 Final 12.000c 2.118c 5.143c 27-Sep-11 NZD
09-Mar-11 Interim 11.000c 1.941c 4.714c 31-Mar-11 NZD
01-Sep-10 Final 14.000c 0.000c 6.000c 27-Sep-10 NZD

The Gross Div Yield (NZX Site) is 6.096%. How can I understand this 6.096% from the information above ? What will I actually get in my bank account. Note: Have very little other income.

Thanks in anticipation for any help I might get.
Cheers.

[macduffy]

The first thing to note is that the NZX info is historical and that previous dividends, while to some extent a guide, aren't necessarily what will be paid in future!

The interim div paid on 26 March last was at the rate of 11cps. This amount, less a small withholding tax deduction (around 4% of the amount, in my case) was paid into my bank account, ie around 10.5cps. Imputation credits of around 4.7cps were "attached" to the dividend, giving a gross dividend of about 15.7cps. The Gross div yield quoted is probably the sum of that amount, plus the previous equivalent final div gross amount, expressed as a percentage of the shareprice. Note that the benefit of the imputation credit only accrues if there is other tax paid income to set it against.

Phew.... I hope that's understandable and reasonably accurate. No doubt someone will correct/clarify if not.

Cheers

[toucan22]

For the dividend payouts:
26-mar-13 - 9.9 cents net per share
21-sept-12- 12 cents net per share
30-mar-12- 11 cents net per share
I believe that Imputation credit will be of tax benefit to you but I leave that to my accountant.
Hope that helps.

[QUOTE=RTM;400476]I wonder if someone can help me. Considering buying some Contact shares. Will probably hold indefinitely, so am trying to understand what the dividend looks like. Looking at NZX site I see this info:

[Snow Leopard]

...
Ex Dividend Period Amount Supp. Imputation Payable Currency
06-Mar-13 Interim 11.000c 1.941c 4.714c 26-Mar-13 NZD
24-Aug-12 Final 12.000c 2.118c 5.143c 21-Sep-12 NZD
...
Cheers.

So from above 6-Mar-13:
11c is the 'cash' component and 4.714c is the imputed component (tax already paid by the company for that 11c).
(You can ignore the 1.914c supp if you are a new zealand tax resident, that is only for people like me).

So your gross (before tax dividend) is 11+4.714 = 15.714c

Add in the 12+5.143 = 17.143c dividend for Aug-12 and the company has paid out a gross of 15.714 + 17.143 = 32.857c per share for the last year.

Divide that by the current share price of 539c and your get 6.096%.

Without a long discussion of imputation credits and tax if your overall tax rate (tax due/gross income) is less than 30% you will get the 11c+12c and may be able to get a refund on other tax paid. (Note if you, like macduffy get 10.5 of your 11c then that should be repaid at the end of the year by the IRD).
If your overall tax rat is greater than 30% then the IRD will want a little more money off you.

Think that is still correct but I have not actually been NZ tax resident for a few years.

Best wishes
Paper Tiger

[Banksie]

I have just been trying to figure this out reading the IRD site (http://www.ird.govt.nz/business-income-tax/imputation/imputation-basics/). What you said sounds right Paper Tiger.

From 31 March 2013 the maximum imputation credit will be 28% (previously it was 30% and that is what CEN used 15.714 * 0.3 = 4.714).

If I am not mistaken the calc for macduffy is:

Dividend + Imputation Credit - 33% RWT
11 + 4.714 - 5.185 = 10.528c

If my maths is holding up then I figure an equivalent dividend next year would only net you 10.236c

11 + 4.277 - 5.041 = 10.263c

[RTM]

Thanks all for the help. Appreciate the link Banksie.

[Arbitrage]

Who needs MRP while CEN is performing so well? Up again today.

[CJ]

Who needs MRP while CEN is performing so well? Up again today.Would work as a good arbitrage should there be a drought in the south island rather than the north island where their respective hydro generators are located.

Disc: hold CEN and TPW (directly and through IFT). Uncertain on MRP but will probably put in for a small holding.

[fish]

Would work as a good arbitrage should there be a drought in the south island rather than the north island where their respective hydro generators are located.

Disc: hold CEN and TPW (directly and through IFT). Uncertain on MRP but will probably put in for a small holding.


initially that sounds a good idea but closer research will show you that MRP is disproportionate and poorly balanced compared to CEN-MRP relies on one major catchment area and hydro accounts for 67% generation-a very risky proportion of generation and all in one catchment area .A drought in the southern and western alps is less likely because of prevailing winds and snow melt .Should a drought happen cen can increase their gas generation to make up for the smaller shortfall in generation

In contrast cen has its own gas reservoir and generation in addition to lots more geothermal-and Te Mihi currently being commissioned.
investors are starting to wake up to predictions made earlier this year in this thread that it should be a bumper year for cen based on fundamentals andclearly the chartist has got it badly wrong
I really dont think i will make an investment into mrp unless someone can convince me I have got it all wrong and mrp isnt going to make losses in the 2nd half of this financial year and future years.I really believe MRP could be for severe share price punishment when the full year results become known.

[troyvdh]

giday...I have no issue with your positive comments about CEN at all.....but man ..about MRP ...that's loaded...if that's true ..which I do not wish it be for various reasons..then for sure its good bye John and Hello David....It would be truly a nasty outcome...should MRP fail....it will only serve to embolden those who are against such endeavours....I shudder...anyways cheers...

disc...hold about 8000 CEN

[CJ]

Fish - MRP relies on just one catchment for its hydro but it is a big one -this years drought was big though I think we should be expecting more going forward given climate change (note it is no longer refered to as global warming). Also Snow melt is slow during winter which is a time of high demand. However, as you state, it is over reliant on Hydro (64% for MRP vs 37% for CEN).

CEN also has a lot of Geothermal but not quite as much as MRP from what I can tell (at least % wise - 23% vs 30% - Increasing to 40% with new plant). It does make you wonder why MRP is advertising itself as the geothermal experts when CEN must be equally as competent.

CEN is also reliant on a lot of Combined cycle for its generation (31% compared to 6% for MRP) which is expensive, even if it does have its own gas reservoir. Since CEN is more reliant on expensive gas it does make you wonder why MRP isn't more profitable than it is given it is ~95% Hydro/geothermal which is extremely cheap.

I agree that CEN is the better share at the moment but I am confused as to why MRP isn't more profitable given it sources more of its power from cheap renewables.

Edit: Just saw this which confirms my confusion:


"Geothermal is a unique renewable because of its predictability and the reliability of earnings it creates," he said. "There are other geothermal assets that you can get access to on the stock market but they are in a portfolio of a lot of gas assets [which have higher operating costs]." http://www.stuff.co.nz/business/industries/8534881/Mighty-River-Power-boss-confident-ahead-of-sale

[Jaa]

The Labour/Greens policy of charging for generation on a cost plus a reasonable return basis instead of our current marginal cost system will not work out so badly for Contact. They got most of the government's expensive power stations when they were split from ECNZ. Genesis as well.

It is Meridian, Mighty River and Trustpower in that order who will be most affected as they run the power stations that produce the cheapest power.

[garfy]

CEN SP has been slipping over the past few days (although up 4c at the time of writing), following the tumble from after L/G pronouncement. Would be very interested in the Forum opinions on the ability of 'the market' to cope with another 4 companies, the potential closure of Tiwai Point, and the possibility of a L/G government. The ice seems to be getting rather thin.

disc. Holding CEN, not interested in the SOE's IPOs.

[CJ]

CEN SP has been slipping over the past few days (although up 4c at the time of writing), following the tumble from after L/G pronouncement. Would be very interested in the Forum opinions on the ability of 'the market' to cope with another 4 companies, the potential closure of Tiwai Point, and the possibility of a L/G government. The ice seems to be getting rather thin.

disc. Holding CEN, not interested in the SOE's IPOs.
I dont think the market will be concerned if all the SOE float.

Tiwai would be managed with higher cost plants closing (eg Huntly) such that there wont be such a spike in supply.
LG is another matter and probably 50% factored into price considering LG have a 50% chance of getting in.

[Arbitrage]

The price is almost back to where it was before the Labour Greens announcement.

[CJ]

The price is almost back to where it was before the Labour Greens announcement.Per Google, CEN down 1.75, NZX50 up 3.6% so it is still down over 5% compared to the market. TPW down 1.9% so I think we can call it a 5% drop.

[fish]

Per Google, CEN down 1.75, NZX50 up 3.6% so it is still down over 5% compared to the market. TPW down 1.9% so I think we can call it a 5% drop.


todays nzx announcement of operational performance looks good for CEN-commercial and industrial sales up 10% and profits and prices up'

5 island hydrostorage approx. 80% normal and n/island 60%

Geothermal down but te mihi about to rectify this plus more

Not so sure about mrp however

[rbel038]

I wouldnt be so optimistic about te mihi myself. It seems MRP definitely beat them to the punch with Ngatamariki

[troyvdh]

are institutions getting in ...or out of CEN....can one of you chartists tell ie....volume etc cheers....

[Lizard]

Well I've bought in, so i presume instos are getting out! :)

[Hoop]

are institutions getting in ...or out of CEN....can one of you chartists tell ie....volume etc cheers....
Hope this helps Troy
Arrows show the high volume getting in (blue) and getting out (red)
Circle show lower volume buys getting in (blue) and getting out (red)

http://i458.photobucket.com/albums/qq306/Hoop_1/CEN31052013.png (http://s458.photobucket.com/user/Hoop_1/media/CEN31052013.png.html)

[Joshuatree]

Curious re your buy in to Contact Lizard. Good value atm?, expecting a tide of maturing bonds looking for a home ? or something else ? cheers JT

[Snoopy]

Curious re your buy in to Contact Lizard. Good value atm?, expecting a tide of maturing bonds looking for a home ? or something else ? cheers JT


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?

SNOOPY

discl: hold CEN

[fish]

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?

SNOOPY

discl: hold CEN

No worries here at all snoopy .
Only 2 weeks to go before the end of june and the trend will be broken for the 2013 year and hereafter we should see the reversal continue .
I am looking forward to a big divi in September.

[Snow Leopard]

Hope this helps Troy
Arrows show the high volume getting in (blue) and getting out (red)
Circle show lower volume buys getting in (blue) and getting out (red)

[see original post (http://www.sharetrader.co.nz/showthread.php?2674-CEN-Chart&p=410244&viewfull=1#post410244) for chart]


As well as Fundamental Analysis (FA) I use Technical Analysis (TA) as part of my trading strategy however...

I also believe that an awful lot of TA is over-complicating rubbish and no more so this sort of thing.
The on-market trading and the off-market big transfers have little correlation to each other or the future direction of the share price.

The high volume getting in is also some high volume getting out.
Smart/dumb money getting is also smart/dumb money getting out (these particular labels are only ever added much later when the price movement goes with or against the trade).

I specifically cap daily volume based on the preceding average volume and it makes for me a much clearer picture of what is going on.

Feeling better now :mellow:
Paper Tiger

[Aaron]

Curious re your buy in to Contact Lizard. Good value atm?, expecting a tide of maturing bonds looking for a home ? or something else ? cheers JT

I would also be interested in your reasons for buying CEN Lizard as you are a well respected poster on this site. if you care to share.

[Snoopy]

No worries here at all snoopy .
Only 2 weeks to go before the end of june and the trend will be broken for the 2013 year and hereafter we should see the reversal continue .
I am looking forward to a big divi in September.


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

SNOOPY

[Lizard]

I would also be interested in your reasons for buying CEN Lizard as you are a well respected poster on this site. if you care to share.

Sorry, I only just saw this and previous from Joshuatree.

The main reason I haven't posted any thoughts on CEN is because I am pretty busy right now, so my analysis is a bit light-weight at this stage and I don't particularly want to influence others with it.

Since you ask, below are my initial thoughts that have made me buy a small parcel (I often buy small parcels to force myself to follow a stock more closely!).


The capex cycle should have peaked and will be more cash for dividends
I think this will remain a dividend driven market for a bit longer
Their assets seem more conservatively valued than MRP and Meridian at first look
My initial valuation says $5.87 - $6.18
A large part of the NZX50 may be energy stocks, so it would be good to understand them better!


I should probably still try and find stats on relative energy capacity of each electricity company and their respective cost profile. I also have a general belief that electricity shares should be less volatile in a possible downturn, but I should probably check history on that one too.

[percy]

If and when you analyse this sector,would you please try and figure out who is making/losing money on the "electricity futures market"?
Trust power for example sold a lot more power than they generated, last time I looked at them.Do any of them employ Nick Leeston?

[Joshuatree]

Thanks Lizard and others appreciate it. For what its worth Craigs have a buy on it with Target of $5.91. If a USA correction is coming CEN could be a reasonably safe place to be.

[Newman]

Thanks Lizard and others appreciate it. For what its worth Craigs have a buy on it with Target of $5.91. If a USA crash is coming CEN could be a reasonably safe place to be.

Contacts is on track of reducing capital spending, which would help to increase dividend. It announced $25 m asset disposal today. Cash is the king in difficult times.

[Arbroath]

Sorry, I only just saw this and previous from Joshuatree.

The main reason I haven't posted any thoughts on CEN is because I am pretty busy right now, so my analysis is a bit light-weight at this stage and I don't particularly want to influence others with it.

Since you ask, below are my initial thoughts that have made me buy a small parcel (I often buy small parcels to force myself to follow a stock more closely!).


The capex cycle should have peaked and will be more cash for dividends
I think this will remain a dividend driven market for a bit longer
Their assets seem more conservatively valued than MRP and Meridian at first look
My initial valuation says $5.87 - $6.18
A large part of the NZX50 may be energy stocks, so it would be good to understand them better!


I should probably still try and find stats on relative energy capacity of each electricity company and their respective cost profile. I also have a general belief that electricity shares should be less volatile in a possible downturn, but I should probably check history on that one too.

If I can add my 2 cents - the capex cycle has peaked for Contact in a big way and the next 5 years should see higher dividend payouts, and possibly a higher payout ratio also. Given the global search for yield is only having a breather IMO Contact could be a $7 stock again in a couple of years with higher dividends so maybe $2 capital growth combined with a 25-30c dividend makes for a company worth owning.

[fish]

If I can add my 2 cents - the capex cycle has peaked for Contact in a big way and the next 5 years should see higher dividend payouts, and possibly a higher payout ratio also. Given the global search for yield is only having a breather IMO Contact could be a $7 stock again in a couple of years with higher dividends so maybe $2 capital growth combined with a 25-30c dividend makes for a company worth owning.

All the stars are coming into line-cook strait cable upgrade,dry year for north island-so far,more geothermal,gas storage,more high value industrial customers,nz manufacturing increasing.
Other forces are currently shaping the market-hopefully your estimation of a couple of years will see the sp increase-anywhere from $6 to $9 is my guess

[Snoopy]

The capex cycle has peaked for Contact in a big way and the next 5 years should see higher dividend payouts, and possibly a higher payout ratio also. Given the global search for yield is only having a breather IMO Contact could be a $7 stock again in a couple of years with higher dividends so maybe $2 capital growth combined with a 25-30c dividend makes for a company worth owning.


You are right about that capex peaking Arbroath. I went back over ten years (from FY2003 to FY2012) and here is the annual capex spending over that time:

$62.1m, $44.1m, $67.9m, $138.7m, $149.2m, $282.0m, $488.8m, $468.7m, $529.5m, $583.0m

That comes to a grand total of $2.814b over ten years.

The depreciation figures over that same period make for an interesting comparison:

$100.6m, $114.2m, $94.3m, $133.2m, $136.9m, $143.2m, $164.8m, $155.4m, $155.1m, $176.9m

You can see in those early years from 2003, capex was significantly lower than depreciation. One interpretation of that was that Contact were not keeping their maintenance up to allow dividends to be higher. IIRC there were even calls for CEN to return capital to shareholders. Then just a few years later CEN was so strapped for cash, they created a dividend reinvestment scheme where shareholders defaulted to buying more shares with what would have been their dividend cash payouts.

Total CEN depreciation over the ten years I followed was $1,374.7m.

On paper the fact that capital expenditure has been more than twice depreciation recorded over the same period is great news. However, such a simple analysis ignores the fact that inflation over the life of a power station means it would incur a far greater cost to rebuild a plant damaged by a natural disaster, than any disparaged 'book value' of generation assets.

SNOOPY

[Lizard]

On paper the fact that capital expenditure has been more than twice depreciation recorded over the same period is great news. However, such a simple analysis ignores the fact that inflation over the life of a power station means it would incur a far greater cost to rebuild a plany damaged by a natural disaster, than any disparaged 'book value' of generation assets.

Looking at valuation of assets was interesting - MRP assets seem to be re-valued annually and, provided the value increase outstrips depreciation, the accumulated depreciation appears to get written back to zero. CEN, on the other hand, seems to be working off 2004 book values for assets held at that time and at cost thereafter for additions and improvements. If I have read it correctly, it therefore seems that the values placed on CEN assets are likely to be more conservative.

[Snoopy]

Looking at valuation of assets was interesting - MRP assets seem to be re-valued annually and, provided the value increase outstrips depreciation, the accumulated depreciation appears to get written back to zero. CEN, on the other hand, seems to be working off 2004 book values for assets held at that time and at cost thereafter for additions and improvements. If I have read it correctly, it therefore seems that the values placed on CEN assets are likely to be more conservative.


According to my records Lizard, CEN last revalued their assets for the FY2007 annual report and the amount of that revaluation was $401.09m. Before that there was a revaluation of $550.3m that came into the books for the FY2004 annual report. Contact have (had?) a policy of revaluing their assets every three years. But there was no revaluation in FY2010. I don't know if this is because the assets were not worth revaluing, or if the policy changed. If the revaluation policy is still in force, CEN shareholders can expect the assets to be revalued in time for the FY 2013 annual report.

SNOOPY

PS If your evaluation of the MRP assets valuation policy is accurate, it does sound like pushing the envelope. All that remains to be done is to produce the next MRP annual report with a red cover, wave it outside parliament and Russell Norman and his Green/Labour friends will be sharpening their horns.

[Lizard]

I think you will find the change on page 60 of the 2010 annual report, where it explains that the 2007 valuation gains were reversed in a move back to cost basis:


Contact has elected to make a voluntary change in accounting policy in relation to the measurement basis for generation plant and equipment and move to a cost basis as it is reliable and more relevant. The change in accounting policy has been applied retrospectively to 1 October 2004, the date of Contact’s transition to NZ IFRS and the date of acquisition of 51.4 percent of the shares in Contact by Origin. Fair value at 1 October 2004 is considered deemed historical cost owing to the impracticability of determining actual cost back to the original asset purchase date. As a result of the change, the revaluation reserve at 1 October 2004 ($1,547.6 million) has been transferred to retained earnings. In addition, the revaluation in 2007($401.1 million) and the consequential deferred tax ($120.3 million) have been reversed.

[Lizard]

Still feeling my way as far as how much to read into various industry stats and comparisons, but from what I could find, CEN had 23% of NZ electricity generation in the 6 months to March and MRP had 17%. MRP had $5.0 bn on balance sheet of "property, plant and equipment" and CEN had $5.1 bn. Which appears to me, at least on the surface, to add weight to the view that CEN's assets are undervalued in comparison to MRP (or MRP's over-valued vs CEN).

[Snoopy]

I think you will find the change on page 60 of the 2010 annual report, where it explains that the 2007 valuation gains were reversed in a move back to cost basis:


Quite right Lizard, regarding basing current power station valuations on 2004 book values, as reassessed in the 2010 annual report. That will teach me not to read the foot notes! That makes sense from the point of view of Origin taking their controlling stake at that time. But it is odd in the sense that the change to historic valuation was made because there was little likelihood of power stations being readily tradable entities. Yet IIRC it was almost exactly about that time that the government did quite a bit of cross trading of SOE power assets in preparation for the upcoming Mighty River, Meridian and Genesis floats!

I have held CEN since the float and had more or less consigned it to the bottom drawer. It was performing well if not spectacularly. CEN was doing its job in offsetting my own power bills via dividends received. But with the National lead government power floats and stuttering sharemarket performance, it is time for me to pay some more attention to CEN.

SNOOPY

[Snoopy]

Still feeling my way as far as how much to read into various industry stats and comparisons, but from what I could find, CEN had 23% of NZ electricity generation in the 6 months to March and MRP had 17%. MRP had $5.0 bn on balance sheet of "property, plant and equipment" and CEN had $5.1 bn. Which appears to me, at least on the surface, to add weight to the view that CEN's assets are undervalued in comparison to MRP (or MRP's over-valued vs CEN).


Good point made on generating asset value to market share making Contact Energy look good relative to MRP.

More points of favour for Contact: CEN are better diversified geographically in terms of generation assets. Not that this is necessarily a 'problem' as the real trick is matching the generation base with the customer base. Having generation assets all over the country decreases the downstream customer risk of having a bad year in hydro generation though.

Both CEN and MRP have their hydro base on one big river system. But CEN has more inflows from snowmelt. For that reason I see CEN as potentially a more reliable hydro generator than MRP. This is leaving aside the earthquake stability of the Clyde dam.

The main negative I see with CEN is that their large gas fired station just south of Auckland, the largest market, carries with it some fuel price risk. Contact themselves have chosen to develop geothermal energy of late as their lowest cost base-load option going forwards. Yet with gas, hydro, geothermal and wind all on the expansion drawing board in the future, Contact has the broadest possible chance of getting it right going forwards, whichever way the fuel winds flicker.

SNOOPY

[Lizard]

Hi Snoopy,

In regard to asset valuation, I do wonder whether the whole field becomes a bit circular when "fair value" measurement is used rather than cost - i.e. the "fair value" measurement potentially allows assets to be re-valued based on future cashflows... but in a regulatory environment, a "fair return on capital" seems to be considered a basis for determining acceptable pricing.

A few years ago, New Zealand was tight for capacity and the opening up of markets encouraged private investment... now that capacity fears have been allayed, there will be temptations for governments to regulate pricing again and damn the investors that provided for the capacity growth. So it's hard to get too enthusiastic. Of course there is always the prospect of a game-changer - electric vehicles.

[CJ]

In regard to asset valuation, I do wonder whether the whole field becomes a bit circular when "fair value" measurement is used rather than cost - i.e. the "fair value" measurement potentially allows assets to be re-valued based on future cashflows... but in a regulatory environment, a "fair return on capital" seems to be considered a basis for determining acceptable pricing.Power companies aren't regulated - they are fully competitive.

The key metric for me is cashflow - this is what pays the dividend and is what the share is valued on - yeild and growth. How they value assets is just the accountants justifying their wages.

[Snoopy]

In regard to asset valuation, I do wonder whether the whole field becomes a bit circular when "fair value" measurement is used rather than cost - i.e. the "fair value" measurement potentially allows assets to be re-valued based on future cashflows...


Some might call the whole revaluation of assets of power companies a rort, although as a loyal CEN shareholder I wouldn't use such a term :-).

I think the one thing that is acknowledged, even by the Green Party, is that construction costs do not remain static. Thus if you allowed a hydro power station to sell electricity at historical cost only, the costs recovered would not be enough to renew the asset throughout its working life. The Greens are talking some 'inflation adjustment factor' to be added to the historical power station account cost, when determining a 'fair' rate to charge for power.



but in a regulatory environment, a "fair return on capital" seems to be considered a basis for determining acceptable pricing.


The unknown is, where is 'baseline zero' taken from? IIRC the Clyde Dam was written down to something like $2.2billion when Contact was formed. But of course it was a lot more expensive than that to build it. So maybe if we got right back to original historical cost, the Labour Green's power policy will actually be positive for Contact Energy?



A few years ago, New Zealand was tight for capacity and the opening up of markets encouraged private investment... now that capacity fears have been allayed, there will be temptations for governments to regulate pricing again and damn the investors that provided for the capacity growth. So it's hard to get too enthusiastic. Of course there is always the prospect of a game-changer - electric vehicles.


All those electric vehicles will be charged up at night though will they not? Taking up the 'slack' while demand for electricity is low. Thus no overall increase in electricity generating capacity will be required if the country goes mad for EV?

SNOOPY

[CJ]

All those electric vehicles will be charged up at night though will they not? Taking up the 'slack' while demand for electricity is low. Thus no overall increase in electricity generating capacity will be required if the country goes mad for EV the lakes only hold so much water which is the majority of our power. Wind and geothermal are unlimited in theory.

[Snoopy]

the lakes only hold so much water which is the majority of our power. Wind and geothermal are unlimited in theory.


I am not sure this is the way to think of the relative importance of hydro/wind/geothermal, at least as far as Contact Energy is concerned.

My contention is that wind and hydro are both theoretically 'unlimited'. But, particularly in the case of wind, they are only unlimited if the daily inputs match the daily outputs. Hydro has a reservoir. That means the matching daily power inputs and outputs are not as critical as matching inter-seasonal inputs and outputs. Wind energy is unable to be stored, at least until someone decides some kind of battery storage system is viable.

Without an associated battery storage system, I would suggest that wind turbines are of no value to an electricity generator. Of course if you combine wind generation assets with hydro and have the ability to switch between the two as a source of power, then wind turbines suddenly have significant value, because suddenly they have a hydro-lake 'battery' in the combined wind/hydro generating system.

Looked at in this context it is interesting that despite having consents for wind farms, Contact Energy has chosen not to build them.

SNOOPY

[Snoopy]

I am not sure this is the way to think of the relative importance of hydro/wind/geothermal, at least as far as Contact Energy is concerned.

Without an associated battery storage system, I would suggest that wind turbines are of no value to an electricity generator. Of course if you combine wind generation assets with hydro and have the ability to switch between the two as a source of power, then wind turbines suddenly have significant value, because suddenly they have a hydro-lake 'battery' in the combined wind/hydro generating system.

Looked at in this context it is interesting that despite having consents for wind farms, Contact Energy has chosen not to build them.


Instead of building wind farms, Contact Energy has put a lot of effort into natural gas power alternatives. The main benefit of natural gas power stations is that you can build them close to where the power is going to be used, and build them at modest capital cost (at least in power station terms). The big negative is that you have to pay for the fuel to keep them running.

Contact has chosen to develop natural gas, principally the Otahuhu B station just south of Auckland. Contact has even drawn up plans for bringing in tanker loads of gas from overseas should local gas supplies dry up. All this at the expense of other energy generation projects (excepting the very recent Te Mihi geothermal project) tells a story in itself.

Contact is majority owned by Australian company Origin Energy. And Origin has extensive natural gas interests off the coast of Australia. It is interesting to speculate whether Contact Energy would have put so much effort into natural gas energy production if Origin were not there on the share register.

I haven't really followed exactly what the tipping point was that saw Contact develop Te Mihi as a geothermal replacement for their natural gas plans. Perhaps if an Origin shareholder is lurking out there they would like to comment?

I guess one advantage of Te Mihi is that although it is not on the doorstep of Auckland, it is at least in the right island. Could it be that Transpower putting a bit more money into the national distribution grid has been a factor?

SNOOPY

[Snoopy]

I haven't really followed exactly what the tipping point was that saw Contact develop Te Mihi as a geothermal replacement for their natural gas plans. Perhaps if an Origin shareholder is lurking out there they would like to comment?

I guess one advantage of Te Mihi is that although it is not on the doorstep of Auckland, it is at least in the right island. Could it be that Transpower putting a bit more money into the national distribution grid has been a factor?


I am not really sure what CJ meant when he said geothermal energy was 'unlimited'. I can remember concerns in the 70s and 80s in Rotorua where concern was expressed that excess use of thermal bore water was affecting the geyser field at Whakarewarewa. I think restrictions since have at least halted the decline.

AFAIK all the modern geothermal developments are subject to resource consents and can't just pipe out unlimited hot water for power.

Geothermal is I think the best renewable source of power in that reliability of production is not weather dependent. But within the limits of current engineering practice, I would say it is really very limited, probably more limited than any other power source I could name.

SNOOPY

[CJ]

I thought I would reply so you dont have to keep talking to yourself
My contention is that wind and hydro are both theoretically 'unlimited'. Hydro is potentially limited. In a drought, the battery doesn't fully charge. From memory, CEN Hydro network doens't have much storage capacity so the recent droughts had an impact. If it is really wet, then the batteries get fill and they have to spill excess water. Resource consents dictate minimum/maximum lake levels.

I have changed my wind on wind - in theory unlimited but you cant control when it blows.


Contact is majority owned by Australian company Origin Energy. And Origin has extensive natural gas interests off the coast of Australia. It is interesting to speculate whether Contact Energy would have put so much effort into natural gas energy production if Origin were not there on the share register.I would guess you are correct.


I am not really sure what CJ meant when he said geothermal energy was 'unlimited'. I assume you would only build a plant big enough to use your resource consent quota. Therefore you can pump out thermal energy to your hearts content and that heat will be forever (the human race will be in big trouble if it wasn't). In fact, with Geothermal, I think you run it 24/7 as there is never a reason to turn it off (unlimited 'battery' and low operating cost). Hence why it is known as base load.

My view on 'unlimited' is if you decided you need 10Mw of power tomorrow is there any constraints on which plant you use:

Hydro - is the dam full or should we think about conserving water (not unlimited)
Wind - will the wind be blowing (not unlimited)
Gas - we can get more gas if we need it, though it may cost more (unlimited but potential increased cost)
Geothermal - we can pump that thermal heat out to our hearts content (unlimited)

[Snoopy]

Hydro is potentially limited. In a drought, the battery doesn't fully charge. From memory, CEN Hydro network doesn't have much storage capacity so the recent droughts had an impact. If it is really wet, then the batteries get fill and they have to spill excess water. Resource consents dictate minimum/maximum lake levels.


You rightly highlight the issue of hydro storage capacity CJ. That doesn't get talked about much because I guess most believe we can't do much about it. Yes the Waitaki river lake reservoirs are 'shallow' in an international sense. But you could say exactly the same thing for MRP and the dams that feed off Taupo.

I suppose instead of spending money on covered rugby stadiums in Dunedin and Christchurch, it might have been worthwhile investigating covering some of those Waitaki reservoirs instead? I read recently that much of the gain from redeveloping the irrigation system on the Canterbury plains will come from piping the water that was previously in open channels. Much less water lost to evaporation that way. I wonder how much power potential is lost from reservoir evaporation in those long hot central Otago summers?



I would guess you are correct.


An alternative viewpoint is that the drive for gas is coming from within New Zealand, due to the well established gas industry in and around New Plymouth. As I said previously I don't follow Origin closely but I think they were eyeing up customers in Asia for their gas off Australia, rather than thinking of little ol' New Zealand.



I assume you would only build a plant big enough to use your resource consent quota. Therefore you can pump out thermal energy to your hearts content and that heat will be forever (the human race will be in big trouble if it wasn't). In fact, with Geothermal, I think you run it 24/7 as there is never a reason to turn it off (unlimited 'battery' and low operating cost). Hence why it is known as base load.


I am not familiar with how these geothermal resource consent quotas are derived. My guess is that it is not 'think of a number' though. I think it is somewhat akin to drilling for oil. You sink a hole into the ground and see how much superheated steam comes up. Then you wait for objections form the neighbours and if there aren't any you get permission to put a turbine on top of your well. Of course if you do well, I am not sure what there is to stop a neighbour sinking their own well and 'tapping in' to what you thought was your resource...

SNOOPY

[CJ]

You rightly highlight the issue of hydro storage capacity CJ. That doesn't get talked about much because I guess most believe we can't do much about it. Yes the Waitaki river lake reservoirs are 'shallow' in an international sense. But you could say exactly the same thing for MRP and the dams that feed off Taupo.

I am not familiar with how these geothermal resource consent quotas are derived. My guess is that it is not 'think of a number' though. I think it is somewhat akin to drilling for oil. You sink a hole into the ground and see how much superheated steam comes up. I actually had CEN and MRP mixed up - the storage of the NI network are a lot less than the SI network I think : http://www.systemoperator.co.nz/hydro-status. They are also feed differently - NI relies on rain whereas the SI relies more on snow melt. Rain happens all the time whereas snow melt more so in the summer when energy demands are lower.

Re geothermal, I dont think you build a $300m+ Geothermal plant unless you have a 30 year resource consent to take out x amount of liquid (I think it comes up as 'hot water' that through a thermal exchange, turns different water into steam). Whether that well produces the the required heat, and therefore electricity is where the gamble is.

[Snoopy]

I actually had CEN and MRP mixed up - the storage of the NI network are a lot less than the SI network I think : http://www.systemoperator.co.nz/hydro-status. They are also feed differently - NI relies on rain whereas the SI relies more on snow melt. Rain happens all the time whereas snow melt more so in the summer when energy demands are lower.


Interesting looking around that Transpower website.

http://www.systemoperator.co.nz/

I can't say that I have spent much time there before today.

One point of note was that Transpower lump power generation into two camps: "hydro" and "non-hydro". When you look at the national mix, with hydro making up 55-60% of total energy generated you can see why. But from the point of view of a Contact Energy shareholder, I am not sure that we should be considering the electricity market that way.

SNOOPY

[Snoopy]

All the stars are coming into line-cook strait cable upgrade,dry year for north island-so far,more geothermal,gas storage,more high value industrial customers,nz manufacturing increasing.
Other forces are currently shaping the market-hopefully your estimation of a couple of years will see the sp increase-anywhere from $6 to $9 is my guess.


One star remains out of line, and it is a big one. The overall electricity market is just as likely to shrink as it is to grow, as 'economic growth' now seems decoupled from power consumption. And short of selling Tiwai to the Chinese and bringing in billions of Chinese national capital and labourers, the inevitable corollary to no new investment is that the aluminium smelter will close.

I think that going forward from here, the sensible investor must view the NZ power market as a static one in terms of demand. On the customer side, power company switching will ebb and flow. But I think the big five are large enough to survive and customers swings are likely to be balanced by customer roundabouts in the longer term.

For me then the key factor in the profitability of power companies going forwards comes under the heading "resilience". It will be the companies who are best prepared to fill holes in the power production line that will prosper. 'Holes' might mean a drought. But it also might mean a spike in gas prices. It looks like those reasonably strategically located geothermal powerstations are the most holeproof going forwards.

As for the CEN share price going forwards. I agree $6 is possible. $9 occurred when power was a 'growth' market and Origin didn't have any gas field development in Australia and when there were far fewer CEN shares on issue. I do think CEN will eventually get back to $9. But sadly I don't think anyone on the share register now will still be alive at that point. Except perhaps for you fish, as I believe the Orange Roughy can live for a couple of hundred years.

SNOOPY

[Snoopy]

For me then the key factor in the profitability of power companies going forwards comes under the heading "resilience". It will be the companies who are best prepared to fill holes in the power production line that will prosper. 'Holes' might mean a drought. But it also might mean a spike in gas prices. It looks like those reasonably strategically located geothermal powerstations are the most holeproof going forwards.


I have been perusing the CEN annual report over the last week or so. Superficially it looks comprehensive. Yet I have been unable to find any of the information I consider necessary to understanding where this company is going inside it. I am sure CEN management are fulfilling all of their legal requirements, but this is very disappointing. Fortunately the information that I was after (power produced and power sold to customers in GWh) does appear in the analyst briefings that usually follow results announcements. So all is not lost.

To get a better understanding of CEN in an overarching way, I looked at last years (FY2012) power supplied, listed at 8280GWh or 8280GWh per year. Then I transform this figure as follows:

a/ Multiply that by 1000 to get MWh per year
b/ Divide by 365 to get average MWh
c/ Divide by 24 to get average MW drawn.

I get 945MW as an average customer demand.

Now to the supply side.

Average daily power available and supplied consisted of 330.6MW (hydroelectric) and 270.7MW (geothermal). So what I consider as the "baseload capacity with no fuel cost" was 601.3MW.

This amounts to 63.6% of power sold by CEN.

The balance is made up by running gas powered generating capacity, and buying in power from other generators.

So there is a 'benchmark' with which to measure CEN against other generators. Now how does it compare?

SNOOPY

[Snoopy]

This amounts to 63.6% of power sold by CEN.

The balance is made up by running gas powered generating capacity, and buying in power from other generators. So there is a 'benchmark' with which to measure CEN against other generators. Now how does it compare?


Repeating the above exercise for Mighty River Power, which has the same balance date as CEN.

Electricity Sold FY2012 10,257GWh. That translates to a 1171MW average power demand.

Average power actually produced by combined MRP hydro dams was 489.9MW.

Average power actually produced by combined MRP geothermal stations was 368.4MW.

That makes a total of 858.3MW.

This 'free fuel' total represents 73.2% of underlying demand.

This doesn't represent the full story of course.

Nevertheless I would argue that on an 'overarching underlying basis', Mighty River Power are in a better position than Contact Energy.

SNOOPY

[fish]

snoopy-do study the monthly operational figures-the may report was released last week.
CEN appear to be doing well-"netback" is improving .
They are going for high value customers and profitability is increasing and my guess is that churn will not be as much a problem.
They are going for more flexible and cheaper generation and upgrades in cook strait transmission will help delivery .
With the above,vast gas storage facility and te mihi operational expect less buy in power.
Future demand is an unknown-so many factors involved. Increased population,use of airconditioning and electric cars make me feel optimistic.
Generational change in use could be a be big growth-my sons use massive amounts of power.

[fish]

Repeating the above exercise for Mighty River Power, which has the same balance date as CEN.

Electricity Sold FY2012 10,257GWh. That translates to a 1171MW average power demand.

Average power actually produced by combined MRP hydro dams was 489.9MW.

Average power actually produced by combined MRP geothermal stations was 368.4MW.

That makes a total of 858.3MW.

This 'free fuel' total represents 73.2% of underlying demand.

This doesn't represent the full story of course.

Nevertheless I would argue that on an 'overarching underlying basis', Mighty River Power are in a better position than Contact Energy.

SNOOPY

Snoopy -if you produce only 73 % of your demand-admittingly all very cheap production and you have a very dry summer/autumn-as we have just had-you have to buy in at very expensive rates . This year much may have been hedged.Next year those hedging contracts will be much more expensive.
What provision have they should growth happen ?

[Snoopy]

Snoopy -if you produce only 73 % of your demand-admittingly all very cheap production and you have a very dry summer/autumn-as we have just had-you have to buy in at very expensive rates . This year much may have been hedged.Next year those hedging contracts will be much more expensive.
What provision have they should growth happen?


You have framed your question around MRP. However, Contact Energy has exactly analogous issues so I will answer on this thread.

To answer your last question first, if growth happens to the extent that you are required to buy energy in at very high prices to satisfy your retail demand, then you put up your retail prices. If some customers leave because of that, then that may help your energy supply/demand balance!

Otherwise if the power price is high enough you will be able to make money by firing up your gas powered power station. MRP has Southdown which can produce 175MW.

Add that to the 853.8MW of renewable power and you get 1029MW. That totals 87.9% of the underlying power load. So we now have just under 12% to make up.

As you said fish, this can be made up by buying power at a hedged rate on the power futures market or buying on the spot market. Or, as a last resort paying some of your big industrial customers not to use power! The cynic would argue this problem has been fixed for the future because the Kawerau pulp and paper plant has given notice they will halve in size.

My contention is that how well a power company does in this current environment is how it manages the costs bridging the gap between 'free fuel' energy and what they need to purchase to bridge the gap.

SNOOPY

PS I am of course writing this with the benefit of hindsight. While you are in the middle of a year, you don't know what the final annual demand will be.

[Snoopy]

snoopy-do study the monthly operational figures-the may report was released last week.
CEN appear to be doing well-"netback" is improving .
They are going for high value customers and profitability is increasing and my guess is that churn will not be as much a problem.
They are going for more flexible and cheaper generation and upgrades in cook strait transmission will help delivery .
With the above,vast gas storage facility and te mihi operational expect less buy in power.
Future demand is an unknown-so many factors involved. Increased population,use of airconditioning and electric cars make me feel optimistic.
Generational change in use could be a be big growth-my sons use massive amounts of power.


I am trying to take one step back from those monthly reporting figures Fish. I don't disagree with any of the points you make. All I would add is that all the other power companies are going after high value customers and trying to minimize churn just as much as Contact Energy. Given we have a competitive electricity market, I can't see one power company gaining a long term upper hand in this area.

The upgrading of the cook strait cable will be very good for CEN, given their hydro generation is in the south and geothermal energy generation is in the north.

The gas storage facility definitely gives CEN an advantage over MRP in terms of having better control of the gas input price. Then we have Contact's Rockgas subsidiary selling gas directly to customers to burn. That gives an alternative path to market for Contact's gas which the likes of MRP does not have. I am still figuring out how direct gas selling affects the overall profitability picture.

As for intergenerational change driving power use, it could be that consumers use more but energy intensive industry uses less, the industrial loss more than offsetting any gain from power hungry consumers. That is one interpretation of actual overall power consumption flat lining since 2008.

SNOOPY

[CJ]

Snoopy - why only look at supply side. I know MRP is short compared with its customers demand. Therefore, while It makes 73% of its power cheap, it is a net buyer of power, which I assume is expensive power.

[troyvdh]

Ok Im biased...but why would one sell CEN..at low $4.90 ......CEN pays nearly 5 % div and have indicated it will increase to whatever....Am I missing something...

hold about 8k

[Snoopy]

Snoopy - why only look at supply side? I know MRP is short compared with its customers demand. Therefore, while It makes 73% of its power cheap, it is a net buyer of power, which I assume is expensive power.


I look at the supply side CJ because I believe that is where a company's management can have most influence. Perhaps I am wrong in thinking this, and in absolute terms I am talking about simplifying the real picture. My quest is to look for a simplified picture that is nevertheless good enough to give some predictive cues.

I do believe that it would be easier to shed customers than grab new ones, so perhaps being a net buyer of power is a good thing?

It is unlikely that any power bought in will be cheaper than in house generated hydroelectric energy or geothermal energy. But I would guess that if another industry player has surplus hydro energy in a wet year, they might be willing to sell that surplus hydro very cheaply?

SNOOPY

[Snoopy]

To get a better understanding of CEN in an overarching way, I looked at last years (FY2012) power supplied, listed at 8280GWh or 8280GWh per year. Then I transform this figure as follows:

a/ Multiply that by 1000 to get MWh per year
b/ Divide by 365 to get average MWh
c/ Divide by 24 to get average MW drawn.

I get 945MW as an average customer demand.

Now to the supply side.

Average daily power available and supplied consisted of 330.6MW (hydroelectric) and 270.7MW (geothermal). So what I consider as the "baseload capacity with no fuel cost" was 601.3MW.

This amounts to 63.6% of power sold by CEN.

The balance is made up by running gas powered generating capacity, and buying in power from other generators.

So there is a 'benchmark' with which to measure CEN against other generators. Now how does it compare?


Contact had a poor hydro year in FY2012, so one of the best comparisons that we can make would be CEN in FY2011

FY2011 power supplied, listed at 8254GWh or 8254GWh per year. Then I transform this figure as follows:

a/ Multiply that by 1000 to get MWh per year
b/ Divide by 365 to get average MWh
c/ Divide by 24 to get average MW drawn.

I get 942MW as an average customer demand.

Now to the supply side.

Average daily power available and supplied consisted of 440.6MW (hydroelectric) and 259.7MW (geothermal). So what I consider as the "baseload capacity with no fuel cost" was 700.3MW.

This amounts to 74.3% of power sold by CEN.

That compares very closely to the "baseload capacity with no fuel cost" of 73.2% achieved by MRP in FY2012. So it seems the relatively poor generation performance of CEN in FY2012 must be blamed on the weather, not CEN management.

Put another way, I believe it is reasonable to assume that CEN will generate an extra 110MW in hydro generation in FY2013 as opposed to FY2012.

SNOOPY

[Snoopy]

First a bit of energy unit revision.

We are told the amount of gas used in power generation over FY2012 was 38.7PJ (source investor presentation for FY2012, p35)

Gas storage is quoted in Petajoules (PJ), with the joule being the metric unit of energy. 1PJ= 10^15Joules
1MJ= 10^6Joules. So 1PJ=10^9MJ

The 'Watt' (W) is the amount of energy units (Joules) produced in one second.

So if we can find the average amount of power produced by the gas powered power stations (Taranaki Combined Cycle and Otahuhu B) in MW, we can multiply this figure by 60 (to find the energy produced per minute), by 60 again (to find the energy produced per hour), by 24 (to find the energy produced per day) and by 365 (to find the energy produced per year), we have the total electrical energy produced over a twelve month period.

Total electricity produced from gas was 4665GWh. I calculate that as equivalent to an average production of 532.5MW

532.5 x 60 x 60 x 24 x 365= 16.8PJ. 16.8PJ is the energy generated over 12 months. Divide that by 38.7PJ (the energy input) and we have the gas fired plant efficiency:

16.8/38.7= 43.4%

For thermal powerplants, I believe that is a stunning result, almost too good to believe. Did I make a mistake in my calculation, or are modern gas turbines really that efficient?

SNOOPY

[Snoopy]

Stage 1 of Contact's gas storage plans is complete and has an estimated capacity of 15PJ of gas. Total gas used in FY2012 for power generation was 38.7PJ. 2012 was a bigger gas generation year that usual. But it is clear from these figures that at best Contact can store around 6 months worth of gas in their Ahuroa reservoir. This means that CEN does not have the capacity to store a couple of years worth of gas as I had naively assumed. CEN have the ability to expand Ahuroa's capacity but have no immediate plans to do so.

In the FY2012 report, we find the 'gas inventory' is listed as being worth $115.8m. On page 34 of the 2012 annual result presentation we find the amount of gas in the Ahuroa reservoir is 11.9PJ. From this we can do a simple division and find out that each 1pJ of reservoir gas is on Contact's books valued at $9.73m

SNOOPY

[Snoopy]

In the FY2012 report, we find the 'gas inventory' is listed as being worth $115.8m. On page 34 of the 2012 annual result presentation we find the amount of gas in the Ahuroa reservoir is 11.9PJ. From this we can do a simple division and find out that each 1pJ of reservoir gas is on Contact's books valued at $9.73m


OK, here is why the above figure is important.

The main shift in generation that I predict for CEN for FY2013 will be a reduction in average gas power generated of 110MW and a corresponding increase of 110MW of hydroelectric power. The money save for not having to pay for gas to burn should flow straight into Contacts FY2013 profit.

110MW x60 x60 x24 x365 = 3.5PJ (output energy)

Divide that figure by the gas turbine average efficiency ( 43.4% ) and I get 8.2PJ of gas being the required to operate 110MW of gas turbine generation over a year. Work out how much Contact doesn't have to pay for that amount of gas and we should have a good stab at how much more profitable CEN will be in FY2013 on an underlying basis.

8.2PJ x $9.73m = $79.8m (before tax) = $79.8m * (1-0.28) = $57.4m (after tax)

There are 718.67m CEN shares on issue. So if the dividend went up incrementally by $57.4 / 718.67 = 8cps, that should be sustainable in years with a reasonable rainfall profile.

Final dividend last year was 12cps, so 12cps + 8cps = 20cps

Sounds like a nice round final dividend number to me :-)

SNOOPY

[Snoopy]

8.2PJ x $9.73m = $79.8m (before tax) = $79.8m * (1-0.28) = $57.4m (after tax)

There are 718.67m CEN shares on issue. So if the dividend went up incrementally by $57.4 / 718.67 = 8cps, that should be sustainable in years with a reasonable rainfall profile.

Final dividend last year was 12cps, so 12cps + 8cps = 20cps

Sounds like a nice round final dividend number to me :-)


The FY2012 result presentation details a rapid projected fall off in capital expenditure going forwards. Last year it was $583m, this year forecast as $380m. Then it decays like this: $290m, $200m, $120m, $100m, in the ensuing four years.

Some have speculated that this will allow even higher dividends in the future. Bank debt at EOFY2012 was reasonably significant in relation to earnings, standing at $1.303billion. ROE was only 5.2%. So I would argue that the safest way to improve earnings going forward would be to pay down debt. Granted interest rates are low now, but this may not be the case five years out. And there is the spectre of the Labour/Green coalition putting a halt to some of the revenue CEN might otherwise expect.

In my judgement CEN will not want to increase dividends above their core earnings gains simply because the whole power sector is living in uncertain times. As a shareholder in it for the dividends however, I do hope that other sharetrader contributors can convince me that I am wrong!

SNOOPY

[Snoopy]

Ok Im biased...but why would one sell CEN..at low $4.90 ......CEN pays nearly 5 % div and have indicated it will increase to whatever....Am I missing something...

hold about 8k

OK time to dive into my rather crude five year dividend model and see what value it spits out for CEN. The five year dividend record for Contact Energy is a follows (year, interim dividend cps, final dividend cps):

2009: 11, 17
2010: 11, 14
2011: 11, 12
2012: 11, 12
2013: 11, 20*

*= my forecast

That comes to a grand total of $1.30, or an average of 26cps.

Generally I go for an 8% dividend yield. However in the case of a utility like this where demand is rather inelastic, I believe 6.5% is more appropriate.

26/0.065 = $4.00

This share price reflects the fact that the dividends over the last five years have been modest in historical terms. Based on a one year payout of 31c (my forecast), the share price should be:

31/0.065 = $4.77

Of course both of these valuations assume zero growth forever. But if we get zero overall market growth for say eight years, that is forever in sharemarket terms.

So there is you reason to sell at $4.90 troyh. Some would say that at $4.90 the share price is being held up by the low interest rates currently available to depositors. You could construct an argument for selling out and buying back in later once interest rates rise.

SNOOPY

discl: hold CEN

[CJ]

However in the case of a utility like this where demand is rather inelastic, I believe 6.5% is more appropriate. 6.5% net is about 9% gross. Compared to 4% at the bank.

Seems a bit high though you assume no growth so the higher rate may be justified to account for risk.
. **

[Snoopy]

... but in a regulatory environment, a "fair return on capital" seems to be considered a basis for determining acceptable pricing.

A few years ago, New Zealand was tight for capacity and the opening up of markets encouraged private investment... now that capacity fears have been allayed, there will be temptations for governments to regulate pricing again and damn the investors that provided for the capacity growth. So it's hard to get too enthusiastic.


I have run some back of the envelope calculations on what might be regarded as 'fair value' for Contact's assets.

The station that has just finished construction is Te Mihi, a new standalone generator site that plugs into the Wairakei geothermal field. Cost all up was $623m, for a power station rated at 166MW. Generally the higher the power rating of the power station the more individual gas turbine units will be contained within it.

When it comes down to it, all of Contact's power stations can be reduced to 'something' driving a turbine. In the case of geothermal that 'something' is usually steam containing some level of mineral impurities. A turbine working in those conditions is IMO unlikely to be a cheap one. Perhaps special alloys are needed that would boost the turbine cost well over and above something that would operate at ambient temperature with purer water (as in a hydroelectric dam)?

Another factor that would make a hydro turbine cheaper to run over the long term would be that when replacement time comes the old one could theoretically be unbolted and a new one put in. With a geothermal field it is more likely that further drilling will have to take place to find the optimum 'hot spot' and that a whole new station will have to be built at a new location.

The greens/labour have been trumpeting excessive profits being generated by overvalued assets. But I think there is an argument that says turbines do eventually wear out. So I am of the opinion that the turbine equipment needs to be thought of as carrying it's replacement value on the books for power pricing purposes. This is necessary to ensure that when a replacement is eventually required the capital replacement budget exists that will ensure the power station can keep running.

Using these ideas I now present my current replacement cost valuation of CEN generation assets:

Te Mihi (geothermal) 166MW $623m
Remaining Wairakei (geo) 120MW $300m
Ohaaki (geo) 104MW(design capacity) $400m

Te Rapa Cogeneration (gas) 44MW $100m
Otahuhu B (gas) 400MW $600m

Clyde (hydro) 440MW $600m
Roxburgh (hydro) 320MW $450m

Note that the book value of Clyde and Roxburgh relate to the turbines and their immediate containments, not the dams themselves and any associated stabilizing earthworks.

I get a total turbine cost of $2473m, say $2.5b round figures.

The cost of building the Clyde dam was around $4b including $1b of overruns. However it was transferred to Contact at around $1.7b. The cost of the Roxburgh earthworks was possibly $2b in Clyde terms, which probably reduces to $200m in 1962 dollar equivalents.

So if we add that $1.9b of historic adjusted earthwork costs to the turbine assets I get $4.4b. Property plant and equipment assets are valued at $5b on Contact's books. I think one could easily make a case for $600m plus of inflation adjustment dam construction value to be added to the historic cost dam figures.

So I would argue that even if the labour greens form the next government, the book value of Contact Energy assets will be unaffected by the new power policy. Given Contact produced an ROE of under 6% in 2012 based on book value, which translates to an ROA of some 5%.... How can that be regarded as excessive?

OK I am sticking my neck out. I don't believe a labour/green power policy if implemented will have any effect on Contact Energy.

SNOOPY

[Snow Leopard]

I...Generally the higher the power rating of the power station the more individual gas turbine units will be contained within it....
The more individual turbines maybe,
but in the power industry a gas turbine [power generation set] is essentially a jet engine coupled to a generator which is used at times of peak demand as they:
a) can be fired up from off to full load quickly;
b) are expensive to run.


When it comes down to it, all of Contact's power stations can be reduced to 'something' driving a turbine. which drives a generator


In the case of geothermal that 'something' is usually steam containing some level of mineral impurities. A turbine working in those conditions is IMO unlikely to be a cheap one. Perhaps special alloys are needed that would boost the turbine cost well over and above something that would operate at ambient temperature with purer water (as in a hydroelectric dam)?
For geothermal the hot water/steam from the ground which has you say is full of stuff does not directly drive the turbines. It is passed through a heat-exchange unit to heat a more benign liquid/gas in a closed system that then drives the turbine.


Another factor that would make a hydro turbine cheaper to run over the long term would be that when replacement time comes the old one could theoretically be unbolted and a new one put in. With a geothermal field it is more likely that further drilling will have to take place to find the optimum 'hot spot' and that a whole new station will have to be built at a new location. If you heat source depletes then yes you need to re-drill but replacing a turbine is straight-forward at a geo-thermal site.

Best Wishes
Paper Tiger

[Snoopy]

The more individual turbines maybe,
but in the power industry a gas turbine [power generation set] is essentially a jet engine coupled to a generator which is used at times of peak demand as they:
a) can be fired up from off to full load quickly;
b) are expensive to run.


Paper Tiger, I believe you are correct. I wrote 'gas turbine' but was actually thinking more 'turbine' in general. However, although gas turbines are expensive to run they are (relatively) cheap to build. And you can build them anywhere, and that means close to NZs largest market (Auckland). So taking into account all costs, I would not say that gas turbines are necessarily expensive. Indeed Contact's Otahuhu B was designed as primarily a base load station. But of course that was in the days of the Maui gas field in full production, and Contact having take or pay contracts to buy gas from Maui and nowhere to store it. Otahuhu B has four individual gas turbine / generator sets IIRC.

SNOOPY

[Snoopy]

If you heat source depletes then yes you need to re-drill but replacing a turbine is straight-forward at a geo-thermal site.


When I wrote about redrilling, I was thinking specifically about Te Mihi being re sited at another part of the Wairakei geothermal field to be closer to the heat source. I was thinking that this was probably because the geothermal field had changed since 1958. But it may have been because a superior access point was always there, but not known in the 1950s when Wairakei was established. Since Wairakei was the world's earliest geothermal power station the jury may still be out as to whether redrilling and rebuilding is a better option that just replacing a turbine on site. I guess the point I was making is that re siting a geothermal power station is more likely than resiting a hydro dam or a wind farm. I admit though that this may be because of our generally less than perfect knowledge of geothermal fields, rather than anything inherent in geothermal technology per se.

SNOOPY

[Snoopy]

which drives a generator


Yes all power generating turbines drive a generator. But a generator is not subject to any special wear and tear which is dependent on the medium (water, steam, natural gas) indirectly driving it. It may be subject to many more stop starts in a peaking station. But that is not what we are talking about here. I don't believe the generator is something that should concern us when comparing different power station technologies.



For geothermal the hot water/steam from the ground which has you say is full of stuff does not directly drive the turbines. It is passed through a heat-exchange unit to heat a more benign liquid/gas in a closed system that then drives the turbine.


I accept that using a heat exchanger to pass the energy to a more benign liquid/gas in a closed system makes a lot more sense than pulling geothermal eruptions straight out of the ground to use, impurities and all! Quite right to pull me up on that Paper Tiger.

The point I was trying to make was that with geothermal energy there is some part of the power generation system that will be exposed to whatever is being pulled out of the ground. This is likely to be more chemically corrosive than pure water. It is very likely this part of the power generation process will be 'high wear' and require either more maintenance or more corrosion resistant construction. Either one will increase the capital and or running costs of a geothermal plant 'unit' over and above the costs of a hydro turbine 'unit' of equivalent output.

Your point that the actual turbine may not be subject to higher material stress PT, is well made. However, this actually strengthens my point. I was assuming that the entire cost of producing a geothermal plant might be up to 50% higher (on a generator output basis). I still believe such costs will be higher in a geothermal plant. But if only a small amount of the pipework needs uprating, maybe the costs are only 10% higher overall. That in turn means that if I base my replacement construction costs for the 'non-geothermal' turbine/generator system on the known costs at Te Mihi minus 33% , I have underestimated those 'non-geothermal' turbine/generator system replacement costs. So the asset value on the books, adjusted for inflation as Greens/Labour would have us do - at CEN- is even less likely to be overdone than I have previously calculated.

SNOOPY

[Snoopy]

6.5% net is about 9% gross. Compared to 4% at the bank.

Seems a bit high though you assume no growth so the higher rate may be justified to account for risk.
. **

CJ I agree with you. Redoing my calculation on a 9% gross interest rate.

2009: 11, 17
2010: 11, 14
2011: 11, 12
2012: 11, 12
2013: 11, 20*

*= my forecast

That comes to a grand total of $1.30, or an average of 26cps, or 37cps gross.

With a 6.5% 'utility' interest rate that gives a share price valuation of

37/0.065 = $5.69

Or based on my forecast dividend payment (44c gross) for this year only

44/0.065 = $6.77

Those two valuations are closer to where Lizard is valuing CEN, although personally I think that $6.77 upper bound of mine is optimistic and unreliable, based as it is on a single years potential dividend.

SNOOPY


PS Previous valuation calculation below for comparative purposes

Generally I go for an 8% dividend yield. However in the case of a utility like this where demand is rather inelastic, I believe 6.5% is more appropriate.

26/0.065 = $4.00

This share price reflects the fact that the dividends over the last five years have been modest in historical terms. Based on a one year payout of 31c (my forecast), the share price should be:

31/0.065 = $4.77

[Snow Leopard]

Paper Tiger, I believe you are correct. I wrote 'gas turbine' but was actually thinking more 'turbine' in general. However, although gas turbines are expensive to run they are (relatively) cheap to build. And you can build them anywhere, and that means close to NZs largest market (Auckland). So taking into account all costs, I would not say that gas turbines are necessarily expensive. Indeed Contact's Otahuhu B was designed as primarily a base load station. But of course that was in the days of the Maui gas field in full production, and Contact having take or pay contracts to buy gas from Maui and nowhere to store it. Otahuhu B has four individual gas turbine / generator sets IIRC.

SNOOPY

Sorry, when I saw gas turbine I just thought peaking set, my bad.
Otahuhu and similar are more complex beasts designed to achieve a higher efficiency, look up ?combined cycle? gas turbines if you are interested.

Wish I could provide information with regard to construction and operational costs for different types of generation for you.

Best Wishes
Paper Tiger

Disc: In a past life I have been involved with many utility companies including electricity generation, transmission and distribution in both New Zealand & Australia

[Snoopy]

Sorry, when I saw gas turbine I just thought peaking set, my bad.
Otahuhu and similar are more complex beasts designed to achieve a higher efficiency, look up ?combined cycle? gas turbines if you are interested.

Wish I could provide information with regard to construction and operational costs for different types of generation for you.

Best Wishes
Paper Tiger

Disc: In a past life I have been involved with many utility companies including electricity generation, transmission and distribution in both New Zealand & Australia

No problem PT. Good to have someone with some experience in the industry following this thread. If this ol' dog starts to go feral again, please feel free to yank the leash!

No doubt there are analysts in dingy rooms paid by institutional investors only for analyzing NZ energy companies. I don't aim to and can't compete with them. I am more interested in a more lazy kind of analysis where I put in 10% of the effort and get 90% of the result. I don't need to know the exact cost of rebuilding all those power stations for my analysis to have meaning I don't aim to get every detail right. But I do want enough detail correct to know that my own little investment ship is still sailing in the right direction.

SNOOPY

[Snoopy]

Wish I could provide information with regard to construction and operational costs for different types of generation for you.


I went all the way back to my 1999 CEN annual report and saw there was $225m of work in progress on the balance sheet. I should point out that at the 1999 balance date neither Otahuhu B, nor the Te Rapa Co-generation project, a joint venture with a predecessor of Fonterra's were operational. These both came on stream during FY2000. Because of its joint venture status, I am picking that Te Rapa was not on the Contact books as an asset. It may not even be on the books at Contact today (anyone know?).

At any rate I would guess that the $225m of work in progress relates to Otahuhu B. This would be buildings and generation equipment only as Contact already owned the underlying land. What $225m would be today in inflation adjusted dollars is hard to estimate. Our NZD to Euro exchange rate has probably improved (the generation equipment Otahuhu B was supplied by Sieman's in Germany) , but the cost of materials would have gone up substantially as well.

I will stick my finger in the air and say $800m in 2013 dollars. Anyone like to agree or disagree?

SNOOPY

[troyvdh]

Not wishing to appear pedantic....I ask again why would folk sell CEN at low $5....Im not sure about volume etc....but surely those who sold surely "in the money" can celebrate had they purchased below this price but ...honestly call me naïve but what prevents these folk in realising that a utility share that almost broached $10 in the past few years ...whats more ..is that this company has heralded bigger dvs.

[fish]

Not wishing to appear pedantic....I ask again why would folk sell CEN at low $5....Im not sure about volume etc....but surely those who sold surely "in the money" can celebrate had they purchased below this price but ...honestly call me naïve but what prevents these folk in realising that a utility share that almost broached $10 in the past few years ...whats more ..is that this company has heralded bigger dvs.
Instead of buying when others are fearful many are happier to follow the trend.
Fear makes investors run away even when that fear is irrational in its extent eg vector at 190 cents .Fortunately i bought lots at this price
Following the trend makes investors relax their guard eg telecom at 900 cents. Unfortunately i was greedy for more profit and didnt sell .
Cen has been mine best investment ever-i did sell all at 900 plus cents and have been buying at around 500cents .
Unfortunately i put all my profits from cen into the nzo 150 cent offer and have lost nearly 1/2 . Stupid but i am learning.

[Jaa]

Not wishing to appear pedantic....I ask again why would folk sell CEN at low $5....Im not sure about volume etc....but surely those who sold surely "in the money" can celebrate had they purchased below this price but ...honestly call me naïve but what prevents these folk in realising that a utility share that almost broached $10 in the past few years ...whats more ..is that this company has heralded bigger dvs.

Dilution! Cen has been heavily diluted since $10 and those divs.

With no growth on the horizon for 10yrs and thus increasing competition combined with the well covered industry risks I fail to see why you guys are excited??

[Snoopy]

With no growth on the horizon for 10yrs and thus increasing competition combined with the well covered industry risks I fail to see why you guys are excited??


Excited? I prefer my investments to be boring. I get my excitement from other activities. Nevertheless I don't mind telling you why I am keeping a watching brief on CEN shares.

The flat outlook and regulatory threat opens up the opportunity on acquiring energy shares at a discount to fair value. That makes me interested. From the little work I have done so far, it seems that Contact and Genesis may be the two energy companies least affected by whatever regulations a Labour/Green government might put on power companies. In fact as regards Contact, I believe they may be completely unaffected by this policy. So while everybody else is heading for the exits on their power company shares, I sense an excellent opportunity to accumulate Contact shares may be nigh.

SNOOPY

[Snoopy]

The station that has just finished construction is Te Mihi, a new standalone generator site that plugs into the Wairakei geothermal field. Cost all up was $623m, for a power station rated at 166MW.


Have just re-referenced my 28 April 2011 cash issue prospectus. On page 22 of that offer document is the following quote:

"The project is expected to cost $623m, which includes construction of the Te Mihi power station (including two steam turbine generators and associated equipment), electrical switchyard and transmission connection works, incremental steamfield works on the Wairakei geothermal system, including drilling of geothermal wells and other ancilliary works."

Conspicuous by its absence is any mention of buying outright or leasehold the underlying land.

For comparative purposes, the Ngatamariki 82MW geothermal power station, owned by Mighty River Power and under construction at the same time is forecast to cost $475m. On a Megawatt per dollar basis the Contact station is 54% more bang for the buck. I find it hard to reconcile this for two modern geothermal stations being built in the centre of the North Island at the same time. My only plausible explanation is that Ngatamariki is built on leasehold land and perhaps the extra money is related to buying a long term lease on this land?

Whatever the reason for the difference, my view has been strengthened that Te Mihi, built by Contact Energy is a good base figure to work from when estimating the replacement costs of other geothermal power stations excluding land costs.

SNOOPY

[Snoopy]

The Greens/Labour have been trumpeting excessive profits being generated by overvalued assets. But I think there is an argument that says turbines do eventually wear out. So I am of the opinion that the turbine equipment needs to be thought of as carrying it's replacement value on the books for power pricing purposes. This is necessary to ensure that when a replacement is eventually required the capital replacement budget exists that will ensure the power station can keep running.

So I would argue that even if the labour greens form the next government, the book value of Contact Energy assets will be unaffected by the new power policy. Given Contact produced an ROE of under 6% in 2012 based on book value, which translates to an ROA of some 5%.... How can that be regarded as excessive?

OK I am sticking my neck out. I don't believe a labour/green power policy if implemented will have any effect on Contact Energy.


From the Chairman's Review, underlying earnings for Contact were $176m for FY2012.

Go to the balance sheet on page 51 and I see Property Plant and Equipment valued at $5,163.6m and gas storage at $51.5m being the book value of assets that bear any generating capability.

So my ROA calculation for Contact Energy for FY2012 is as follows:

$176m / ($5,163m + $51.5m) = 3.4%

I can't see how any Labour/Green minister of energy could call that return excessive. Unless of course, they believe that those assets on the books are way overvalued. I will now have a second bite at that question.

SNOOPY

[Snoopy]

So my ROA calculation for Contact Energy for FY2012 is as follows:

$176m / ($5,163m + $51.5m) = 3.4%

I can't see how any Labour/Green minister of energy could call that return excessive. Unless of course, they believe that those assets on the books are way overvalued. I will now have a second bite at that question.


OK, here is my second attempt estimate of the replacement value of the working parts of the CEN power stations, made by basing my 'turbine costs' around the figures available for Te Mihi.

Te Mihi 166MW $623m
Wairakei 100MW (residual after Te Mihi is fired up) $400m
Ohaaki 104MW (installed capacity) $400m
Poihipi 55MW $200m
Te Huka 23MW $100m

Otahuhu B 400MW $800m

Clyde Dam 432MW $600m
Roxburgh dam 320MW $400m

Te Rapa Co-generation 44MW $100m
Taranaki Combined Cycle 377MW $600m

I make that a total 'turbine cost' of $4,223m. Total property plant and equipment is listed at $5,164m. So the difference is $941m. The question I ask myself is, how much of a hydro dam would that $941m buy today? $941m less than the $1700m-$600m= $1100m the book value of the Clyde dam itself when it was transferred to Contact from Electricorp, and that $1700m total Clyde dam figure is way less than the actual build cost.

I would make the argument that is you accept my turbine costs, the Clyde dam itself is now on the Contact books at only $650m and Roxburgh at around $300m.

I can't see how any Labour Greens ministry could regard these values as excessive. Hence I can't see them drawing up a plan for Contact to sell their power to a new single power authority buyer at any lesser price than today's market price.

SNOOPY

[Snow Leopard]

...I can't see how any Labour Greens ministry could regard these values as excessive. Hence I can't see them drawing up a plan for Contact to sell their power to a new single power authority buyer at any lesser price than today's market price.

SNOOPY
If it is politically expedient for electricity prices to be excessive then they are and the numbers will prove it and many will happily believe it.

Best Wishes
Paper Tiger

[CJ]

I can't see how any Labour/Green minister of energy could call that return excessive. Unless of course, they believe that those assets on the books are way overvalued.

SNOOPYi think you will find their argument is the Dams were paid for by the taxpayer so they should only be able to recover their operating costs. Seriously!!,

That is the only way I can make their statements make seance because, as you say, the replacement cost of one of the hydro dams would probably be above book value.

[troyvdh]

giday...I have just googled "Cost to build the Clutha Dam"

Project cost 1.4 to 2 billion dollars
Stabalisation cost (2005) $936 million...

PS Did not Williamson Construction (NZ) and Zublin construction (German ?) go bust over this ....?.....16 different unions on site ?...may have contributed ..?.....

[Snoopy]

giday...I have just googled "Cost to build the Clutha Dam"

Project cost 1.4 to 2 billion dollars
Stabalisation cost (2005) $936 million...

PS Did not Williamson Construction (NZ) and Zublin construction (German ?) go bust over this ....?.....16 different unions on site ?...may have contributed ..?.....


Thanks for the research Troy. I can't remember what happened to those Clyde Dam construction firms. Perhaps someone else can?

But I have saved from notes that I took ten years ago ( I noted it was from a book on Electricorp from the ChCh public library, in the NZ collection I think, although I didn't note the exact title.)
According to my notes the build cost of the Clyde dam was $1.7billion dollars (in line with your figures). However when Electricorp moved the Clyde assets into the separate 'Contact Energy' bucket, they received $1.6b for the total assets transferred to Contact. Before that transfer of assets there was an $88.9m write down, which was made up of $41.4m in 'inadequate provisions' and $47.8m because of a reduction in gas rights and obligations.

The gas rights were obviously nothing to do with the Clyde dam, but would have been something to do with the take or pay gas supply contract from Maui, principally for the then aging now decommissioned New Plymouth power station. Reading between the lines of my notes, it looks like $1.6b of assets transferred to Contact may have included the Roxborough dam and all of those North Island gas assets as well!

The point I am making here is that Contact's power assets at the beginning were not on the balance sheet at anywhere near their construction cost. I well remember the controversy over all of the extra land stabilization work at Clyde. In fact my memory is that Electricorp deliberately put all their 'difficult' assets into the Contact bucket to be rid of them! I think the prevailing thought at the time was that if there was a big earthquake down south and all of that remediation work was insufficient it would be someone else's problem!

SNOOPY

[Snoopy]

If it is politically expedient for electricity prices to be excessive then they are and the numbers will prove it and many will happily believe it.


Perhaps. But I do believe you still need some structured way to regulate prices down. Not all power stations (or providers) will be regulated down on a simple percentage basis, because different power stations have different cost bases.

SNOOPY

[Snoopy]

i think you will find their argument is the Dams were paid for by the taxpayer so they should only be able to recover their operating costs. Seriously!!,


I think some maintenance budget on the dams themselves must be allowable. That would imply the dams should have some book value, even if it is a nominal one.

If the Labour/Greens policy was implemented, I can see the result on each power generating company being different, dependent on how 'optimistically' the power station asset values are sitting on the books. In the case of Contact Energy I predict a nil effect. But if I apply exactly the same 'Contact' valuation methodology to MRP (see Might River thread), then NPAT drops by 75% - ouch! I think there will be winners and losers with a Labour/Green energy policy. And I don't think Contact Energy is one of the losers.

SNOOPY

[Snoopy]

I am currently considering putting some power generating solar panels on my roof.

http://www.contactenergy.co.nz/web/saveenergy/generatingelectricityathome

Contact are willing to pay me 17.285c per unit of electricity per kilowatt hour (kWh) excluding GST for any electricity that I export to them. However the contract is only short term and can be changed at one months notice. I believe that Meridian used to have a similar offer and suddenly slashed the amount they were willing to pay. The going rate for the other big four companies now seems to be about 5-6c/kWh. Obviously if the price can be slashed at such short notice, it makes a huge difference to the economics of any installation. So here are my questions:

1/ Does anyone on this forum have experience of selling electricity from your house back to Contact and how has it worked out for you?
2/ Why are Contact offering me so much more than their competitors? Theories welcome!

SNOOPY

[CJ]

2/ Why are Contact offering me so much more than their competitors? Theories welcome!They are 'buying' generation capacity. They can drop at anytime to the 5-6c everyone else is offering and no one will change so they will have effectively locked in a long term supply.

But to be honest, they probably dont really care about anything other than being able to say they have X,000 customers which looks good from a green perspective. They have absolutely no control over when and how much energy you supply which is terrible from a network perspective - how do they know if they need to turn on their gas turbines to balance supply. And to make it worse, most of that power comes during the middle of the day, not at peak load.

What you really want is some form of storage (ie batteries) so you can shift the power generation (middle of the day) to when you actually consume it (6-9pm). Thats why Solar water is popular as the water is the storage mechanism. Alternatively, only get panels to cover you base load so you sell very little, if any back to the grid - Solar maybe viable at 30ckwh but it certainly isn't at 5ckwh. However, economies of scale suggests that isn't worthwhile given the installation costs.

[fish]

I am currently considering putting some power generating solar panels on my roof.

http://www.contactenergy.co.nz/web/saveenergy/generatingelectricityathome

Contact are willing to pay me 17.285c per unit of electricity per kilowatt hour (kWh) excluding GST for any electricity that I export to them. However the contract is only short term and can be changed at one months notice. I believe that Meridian used to have a similar offer and suddenly slashed the amount they were willing to pay. The going rate for the other big four companies now seems to be about 5-6c/kWh. Obviously if the price can be slashed at such short notice, it makes a huge difference to the economics of any installation. So here are my questions:

1/ Does anyone on this forum have experience of selling electricity from your house back to Contact and how has it worked out for you?
2/ Why are Contact offering me so much more than their competitors? Theories welcome!

SNOOPY
Go for it snoopy-too good an offer to refuse .
If contact reduce the price in the future consider electric car -batteries are improving,has to be the ultimate way we go ?
It may be in contacts best interests not to reduce the price-good pr, 2/3 of their energy is hydro and South Island-having solar power in n.Island would help conserve hydro in droughts.
Solar power is actually more predictable than windpower

[Snoopy]

It may be in contacts best interests not to reduce the price-good pr, 2/3 of their energy is hydro and South Island-having solar power in n.Island would help conserve hydro in droughts.
Solar power is actually more predictable than windpower


Yes, very good point fish, although I do note CJ's point about the solar power coming on line in the middle of the day, so it won't affect power peaks. The only point I would make against your eminently sensible argument is that if solar energy is so good, wouldn't it make even more sense for Meridian, with their even larger South Island hydro set up than Contact, to have a really attractive generate your own electricity tariff? Meridian do have a scheme:

http://www.meridianenergy.co.nz/save-energy-and-money/generate-your-own-energy/pricing-and-metering/

But they will only pay a good price (25c/kWh) for the first 5kWh of energy you generate each day. After that you revert to a miserly 10c/kWh according to the website.

SNOOPY

[CJ]

But they will only pay a good price for the first 5kWh of energy you generate each day.They use to pay the good price on all solar generated. Changed a few months back.

[JAYAY]

Notice how CEN traded at around 5-20 all day yesterday then someone bought ****loads just before close pushing the price to 5-30. Lo and behold a good result published this morning. Inside info??

[macduffy]

We always suspect such moves just before announcements. Sometimes, though, it's just a matter of someone/ones taking a punt on a good result. After all, it wasn't a secret that the result would be released today!

:cool:

[Snoopy]

Have just re-referenced my 28 April 2011 cash issue prospectus. On page 22 of that offer document is the following quote:

"The project is expected to cost $623m, which includes construction of the Te Mihi power station (including two steam turbine generators and associated equipment), electrical switchyard and transmission connection works, incremental steamfield works on the Wairakei geothermal system, including drilling of geothermal wells and other ancilliary works."

Conspicuous by its absence is any mention of buying outright or leasehold the underlying land.



My view has been strengthened that Te Mihi, built by Contact Energy is a good base figure to work from when estimating the replacement costs of other geothermal power stations excluding land costs.


Have been perusing my FY2013 report, and noting the wind down of future capital spending once Te Mihi is commissioned. Have also heard those reports about Meridian projected to pay out 140% of profit or something for several years into the future. The argument is that depreciation is so high on the eternally lasting hydro dams and cashflow so good that such a policy is sustainable. That got me wondering if a similar situation now applies to Contact Energy. Most of the big capital spending looks to be done, so can we expect bumper dividends from Contact going out into the future too?

I calculate normalized earnings for FY2013 of 27.5cps. At $5.40 CEN is sitting on a PE of nearly 20, not cheap. Dividends paid over the last twelve months were 25cps so we are looking at a net dividend yield of 4.69% which grosses up to around 6.6%. Is it just me, or does that look fully priced in a static electricity market?

Of course if Contact were to suddenly start paying out more than their profit on a sustainable basis then the dividend yield might suddenly look better. Now that Te Mihi is built, there must be whole lot more cashflow available to allow CEN management to do just that - right?

SNOOPY

[Food4Thought]

Notice how CEN traded at around 5-20 all day yesterday then someone bought ****loads just before close pushing the price to 5-30. Lo and behold a good result published this morning. Inside info??

I agree. I also believe that inside information is allowing large buyers/firms to play an unfair game in the NZX. NZ is so small, I really question the constant sudden entries and exits prior to announcement dates. You raise a valid question JAYJAY. I guess it is not fair when it is not us knowing the information, and it does throw question on the market authenticity. Perhaps raising a valid point of confidence and trust? Which they say is of utmost importance for share/money markets.

[CJ]

Have been perusing my FY2013 report, and noting the wind down of future capital spending once Te Mihi is commissioned. Have also heard those reports about Meridian projected to pay out 140% of profit or something for several years into the future. I believe they have signaled higher dividends going forward for this very reason.

NOt sure about their Hydro but MER has recently finished 1 in 40 year maintenance which is why they believe the high payout is sustainable going forward. YOu would have to look at the same for CEN.

[Snoopy]

Of course if Contact were to suddenly start paying out more than their profit on a sustainable basis then the dividend yield might suddenly look better. Now that Te Mihi is built, there must be whole lot more cashflow available to allow CEN management to do just that - right?


I am not so sure that turning on the dividend taps will be possible at CEN. Net interest expense was $66m over FY2013. But that net figure takes into account $44m of interest that was capitalized, presumably largely built into the Te Mihi power station asset base. Once Te Mihi construction is finished there will be no more interest capitalization until construction of the next power station for which there are no firm plans. However overall company short and long term debt debt has not changed radically (note 10) and in fact has gone up from $1,304m at EOFY2012 to $1,370m at EOFY2013. So I can see the net interest bill in FY2014 being well over $100m. And profits will reduce in round figures after tax by 0.7 x $40m = $28m as a result. That in turn translates to eps of some 23.5c going forwards.

Logically this seems wrong as less investment should translate to more cash available for we shareholders. But could it be with this capitalization of interest program winding down, we shareholders might be looking at a cut in dividends going forwards?

SNOOPY

[CJ]

your mixing up profits and cash with your less investments should mean more cash.

You need to look at free cash flows. Then look at their dividend policy (not sure if it is set out nicely like MER's).

MER does apparently have lower debt than competitors, again supporting the high dividend.

[Snoopy]

I believe they have signaled higher dividends going forward for this very reason.


This capitalization of interest thing with CEN has got me rattled a bit. It is one thing having the capacity to greatly bump up your dividends to boost the share price. It is another thing entirely if, long term, it is wise to do so.

Take the overall short and long term debt of some $1,370m as an example. With a net interest payout of $66m for FY2013, that means that CEN are 'net paying' only 4.81% on those funds. I would encourage CEN to lock in all the borrowing they can at those rates. But take out the capitalised interest component and suddenly the interest paid on that balance jumps to:

$110m / $1,370m = 8%

If that is the real underlying interest rate that CEN are paying, wouldn't they and we long term shareholders) be better off just paying off the debt rather than boosting dividends to short term dividend stripping shareholders?

SNOOPY

[Snoopy]

you are mixing up profits and cash with your less investments should mean more cash.

You need to look at free cash flows. Then look at their dividend policy (not sure if it is set out nicely like MER's).

MER does apparently have lower debt than competitors, again supporting the high dividend.

It does appear that capitalising interest has reduced the historic net interest bill, and has artificially boosted past profits?

SNOOPY

[CJ]

It does appear that capitalising interest has reduced the historic net interest bill, and has artificially boosted past profits?it would have yes. The profit relates to operating activities so rightly under IFRS, interest in relation to the uncommissioned asset is capitalised. That extra interest should be offset by the revenue of the new plant once commissioned (if not, it was a bad investment).

Interest of 8% sounds about right - look at their bonds for comparison.

Paying dividends vs repaying debt is an age old question - not sure if there is a "correct" answer.

[Snoopy]

The profit relates to operating activities so rightly under IFRS, interest in relation to the uncommissioned asset is capitalized. That extra interest should be offset by the revenue of the new plant once commissioned (if not, it was a bad investment).


The problem with power company investments is that power is a commodity. So if we have two cases:

1/ Company A builds a power station from pure equity and
2/ Company C (Contact) builds a power station using borrowings which push capitalized interest costs into the construction.

Under this scenario, it is likely that company A will have the lower cost power station. So what happens with a Labour/Green controlled government? It is clear that Contact spent more money on their power station (because they capitalised the interest during construction). So therefore Contact will be allowed to charge the single electricity buyer more for the same rate of power generation, because their construction costs were genuinely higher?

SNOOPY

[CJ]

Snoopy - If what you are saying is the Labour/Greens plan doesn't make sense, I agree. I was explaining how things work in the real world.

[Snoopy]

That AGM must have infuriated the shareholders - enough to break support and breakout downwards. CEN at 6.20 next week my guess...


Not much of a mention of AGMs on this thread (comment above was from 2008) but for what it is worth here is a run down on what happened at the Addington race Course in Christchurch today.

Contact Energy’s AGM opened with - a song! Whai Dewes led all of the senior staff present in what was described as a “Manawa ranga” (I hope I got that right). A ‘manawa’, using my wikipedia maori, is a kind of ‘song challenge’ and ‘ranga’ has a connotation of weaving. The theme of the song was “working with the communities for the resources used”, which - I think - is where the weaving ties things together.

Next down to the spoken business: A short address each from Chairman Grant ‘Ozzie’ King and CEO Dennis ‘Pommie’ Barnes.

Grant King clarified that he doesn’t believe the Tiwai Point Aluminium Smelter will close completely come the next Meridian / NZ Aluminium Smelters power agreement review in 2017. He feels it is more likely NZAS will continue to smelt but on a smaller scale. That means some of that Meridian Manapouri power will become available to the rest of NZ from 2017. And the upgraded south to north island link will allow the electrons to flow, all the way to Auckland if required. Manapouri partly coming on stream will in turn will push future power station builds for all market players out beyond 2020(ish).

Contact’s $450m of bank facilities remain undrawn since balance date. Cashflows are going up, with the wind down of the Te Mihi (latest geothermal) power station build program. Te Mihi construction is finished and the shake down process should result in power delivered to the grid within months if not weeks. Answering a post address question, King noted the life of the geothermal energy plant is determined by the life of the resource consent of the geothermal energy field being tapped. This is no shorter than 25 years, but the equipment could be expected to run for 50 years. Some of Contact’s equipment still working at Wairakei is now 54 years old. The Ohaaki geothermal field re-consents is a work in progress.

No more price rises for power are seen in the medium term, with the caveat that those local infrastructure companies will probably sting Contact for more money to pass Contact’s electrons along the power poles. IOW when Contact do put the prices up, blame the other guys down the line. Improved dividends for shareholders going forwards therefore depends on rising cashflows (already happening) and cost cutting. The Contact head office is now consolidated in the one site in Wellington from FY2013.

With the rise of geothermal energy, burning gas will change from being a base load operation to more of a support role for renewables. Nevertheless a (reduced) take or pay gas contract remains part of Contact’s energy generation plans going forwards. The Ahuroa gas storage facility will now be able to be even better utilized, meaning almost all of the ‘take or pay’ gas can be taken if not immediately used. King also mentioned that with the sale of the old New Plymouth power station site to Port Taranaki, Contact retains an option to build a gas infrastructure plant there. So shipping in LNG from Australia in the future remains an option. King expects the Combined Cycle gas turbine power station in Stratford will be used less under normal hydrology conditions once Te Mihi is in full production. When ultimately required the next power station to be developed will be on the Tauhara geothermal field. Contact already has resource consent for Tauhara (gained in 2011) which is reputedly the largest untapped geothermal energy resource in New Zealand.

On competition, Dennis Barnes elaborated. NZ is divided into 35 distribution regions. Contact claim they are the most cost competitive in 29 of those 35 regions. To boost customer service Contact are installing more smart meters which tie in with their H.E.A.T. strategy. ‘H.E.A.T.’ stands for Heat Energy Assessment Tool, a net based tool that ties in with the 130k so far and rising smart meters in service. HEAT allows better tracking of power use by customers on line

Both King and Barnes took a swipe at the “Labour/Green” single power buyer policy. After being relatively quiet on the topic in the media up to now, Contact has released a commissioned external report to the media today. Main problems identified are potential over investment, pricing volatility and problems with security of supply, not to mention the costs of the extra layer of bureaucracy created.

The just paid final dividend of 14cps, brought the total dividend to 25cps which represents 91% of profits.

The meeting ended with a generous morning tea of aristocratically cut club sandwiches and petit pastries. Whipped cream on freshly baked scones was to finish. Chocolate cake and blueberry mini muffins were available for the cream averse.

SNOOPY

[JAYAY]

Whai Dewes. Yes I remember him at last years AGM giving us an address in Maori. I thought what a great communicator. What was he saying? Who did he think he was talking to? How much does this guy cost us?
A political necessity I suppose.

[Snoopy]

Whai Dewes. Yes I remember him at last years AGM giving us an address in Maori. I thought what a great communicator. What was he saying? Who did he think he was talking to? How much does this guy cost us?
A political necessity I suppose.


Much of the geothermal power station development is on Maori land. So what we have here is a real partnership. I think it is a very good idea to have someone from the local iwi inside the tent. IMO having Whai Dewes on the board is a shrewd move. Some may see him as a 'token maori', but I feel he has a lot more to offer than that. He comes from a very well connected family in maoridom, and is certainly not devoid of business nous.

SNOOPY

[Snoopy]

No more price rises for power are seen in the medium term, with the caveat that those local infrastructure companies will probably sting Contact for more money to pass Contact’s electrons along the power poles. IOW when Contact do put the prices up, blame the other guys down the line. Improved dividends for shareholders going forwards therefore depends on rising cashflows (already happening) and cost cutting.


I have been a Contact Energy shareholder from way back, right from the public float. Starting with a modest holding I have built it up over the years, always buying never selling. I decided to top up my holding this morning, in lieu of putting that money in the Meridian float. Was weighing up between MRP and CEN, but came down on the side of CEN. The numbers tell me that at market opening today MRP was offering a slightly better yield, yet it was probably the fact that in dollar terms I own less CEN than MRP that swayed me.

Actually it wasn't only that. I reread the AGM addresses about all of that strong cashflow. Reading between the lines I think we shareholders could be looking at a modest lift in fully imputed dividends in the coming year, or possibly even a share buyback. At $5.20 we are on an historic gross dividend yield of some 6.7% (less than MRP), but I think the potential for dividend growth is greater than MRP. Hence I am happy to pay the slight premium.

Despite owning some CEN since the start, my median holding time is only 2.5 years. With today's buy, my average holding price is now $4.73. Roll in the two latest cash dividends and my compounding gross rate of return over those 2.5 years has been 7.9%. That could even be a little below market, but given the kind of investment CEN is, I am satisfied.

I did my cause no good by purchasing some shares on market during the 2011 rights issue. The rule of thumb of buying during a capital raising is that you are more likely to get a good deal because of the greater number of shares up for sale. I bought a reasonable tranche of shares at $5.92. That looked good at the time, because this was the first time in ages the CEN share price had slipped below $6. That same purchase doesn't look so clever today! The market has rerated much of the growth out of Contact since.

Nevertheless Contact remains a solid pillar in my overall portfolio, and a near 7% yield (hopefully rising through cost control) is a lot better than I would get at the bank. And on the potential downside from the single buyer electricity model, I still feel Contact has less to lose than the other listed power companies. Now that cash dividends have resumed, I look forward to my CEN dividends covering my power bills into the future.

SNOOPY

PS, Yes, I am fairly economical with my power use!

[troyvdh]

dear snoop...your post very much appreciated....I have a similar story...about your div calculations...am a little confused there...

..Origin...I always thinks whats going to happen to CEN over the long term...what 2-3 attempts historically to take out.... my equal pillar equivalent investment is RYM .

cheers troy

my direct broking site tells me CEN has returned 35%....

[Snoopy]

dear snoop...your post very much appreciated....I have a similar story...about your div calculations...am a little confused there...

cheers troy

my direct broking site tells me CEN has returned 35%....

I badly screwed up my 2.5 year investment return troy. I just pulled the share prices straight from my records, conveniently forgetting about all the extra capital that I put in on the way!

My basic return formula is like this:

(Opening Balance) x (1+i)^n = (Closing Balance + Dividends Received over holding period)

I need to solve the formula for 'i' (the compounding rate of return, expressed as a fraction), while putting in a value for 'n' which is the number of years of my investment. 'n' doesn't have to be a whole number. In my case my median holding period for CEN shares is 2.5 years. So 'n' is 2.5. You need a scientific calculator with a y to the power of x function to solve an equation like this.

That is the correct formula if you don't buy or sell shares through the investment period. However, in my case I added a significant amount of new capital in just after my 'opening balance date'. After adding that in I find my value of 'i' comes out as -0.00244 as a fraction. Multiply by 100 to get a percentage and my two and one half year compounding rate of return is -0.244% per year.

That means I lost money (darn it), although in practice such a miniscule loss is pretty close to breaking even. I guess that is exactly the result I should have expected, buying a tranche of shares at $5.92, 2.5 years ago.

SNOOPY

PS doing a calculation based on a median holding period is a quick and dirty way of doing things. If the returns prior to the median period and after that period are quite different (the case with CEN), then it won't be a good estimate of your average return. The one calculation that is correct is my average holding price of $4.73

[CJ]

I badly screwed up my 2.5 year investment return troy. I just pulled the share prices straight from my records, conveniently forgetting about all the extra capital that I put in on the way!

My basic return formula is like this:

(Opening Balance) x (1+i)^n = (Closing Balance + Dividends Received over holding period)

I need to solve the formula for 'i' (the compounding rate of return, expressed as a fraction), while putting in a value for 'n' which is the number of years of my investment. 'n' doesn't have to be a whole number. In my case my median holding period for CEN shares is 2.5 years. So 'n' is 2.5. You need a scientific calculator with a y to the power of x function to solve an equation like this.

That is the correct formula if you don't buy or sell shares through the investment period. However, in my case I added a significant amount of new capital in just after my 'opening balance date'. After adding that in I find my value of 'i' comes out as -0.00244 as a fraction. Multiply by 100 to get a percentage and my two and one half year compounding rate of return is -0.244% per year.

That means I lost money (darn it), although in practice such a miniscule loss is pretty close to breaking even. I guess that is exactly the result I should have expected, buying a tranche of shares at $5.92, 2.5 years ago.

SNOOPY

PS doing a calculation based on a median holding period is a quick and dirty way of doing things. If the returns prior to the median period and after that period are quite different (the case with CEN), then it won't be a good estimate of your average return. The one calculation that is correct is my average holding price of $4.73
Or you could use Sharesight which does it all for you for any period that you want (since beginning, financial year, calendar year, week, month)

[troyvdh]

dear snoop...no offence intended...but how many folk on this planet can comprehend ...what you posted...you sir are taking the absolute...piss...Whats more I love it...honestly...I hate to admit this but I achieved a maths exam result (mid 70's) of about 18 %...(History about 80 %)...my arithmetic however was I believe second to none.
...Somehow I suspect you knew this already...........................................

cheers troy

PS...My future son in law....is currently working towards honours in maths/calculates (?) so indeed Sir your days may be truly numbered.

[Snoopy]

dear snoop...no offence intended...but how many folk on this planet can comprehend ...what you posted...you sir are taking the absolute...piss...Whats more I love it...honestly...I hate to admit this but I achieved a maths exam result (mid 70's) of about 18 %...(History about 80 %)...my arithmetic however was I believe second to none.
...Somehow I suspect you knew this already...........................................

cheers troy

PS...My future son in law....is currently working towards honours in maths/calculates (?) so indeed Sir your days may be truly numbered.


Dear Troy,

First of all I am impressed you posted such a coherent response post in the middle of the night. Yes I am well aware my reply to you was 'pointy headed', but after midnight is not the best of hours to allow such posts to sink in. Given your history exam result of 80%, I will take your recollection of your maths result of 18% as accurate. However, we are talking 30+ years ago here! Odds on the pointy head exam marker that gave you that 18% maths grade is now dead, so I would put all that out of your mind if I were you.

Given you have learned the lesson of compounding interest since then, as evidenced by your doing OK in the investment markets since, I hereby award you the 'Sharetrader Maths Certificate' for your prowess in mathematics in the real world. So as a now qualified mathematician, you will be in a good position to understand the less pointy headed version of my previous post.

1/ My complicated formula is really only a version of the compounding interest effect.
2/ The compounding interest effect doesn't work properly if you conveniently forget about extra money you put in along the way (as I did).
3/ The amount of compounding interest you get will be affected if you pull money out along the way (for example dividends).

If you understand those three statements, then you understand what I was getting at with my 'pointy head' formula.

SNOOPY

[winner69]

The one calculation that is correct is my average holding price of $4.73

Was that a time weighted average Snoopy?

[winner69]

So CEN ends the month at 480v....not just a 52 week low but the lowest monthly close for 10 years

Looks like 5 years up and then 5 years down. Pays to look at full cycles rather than the 5 year half cycles eh

One reason why I never found power companies that exciting .... never held

10 year chart from ft.com

[troyvdh]

Fair call Winner...if this was my only investment Id be possibly less than impressed...however I believe the return on my investment ..although not stellar..has been better than average...in addition ...I have spent so many happy family times in central...oh yes totally irrational I admit.

Bigger picture...don't we all love the term "Blue Chip"....cheers troy....none the I less continue to keep the faith.


PS keeping the faith paid of for Golden City..did it not....

[Snoopy]

Was that a time weighted average Snoopy?


My $4.73 average holding purchase price is not time weighted, no. I see at the close today I am sitting exactly half way between the $4.71 closing bid and $4.75 ask. All my capital profits from holding since 1998 gone! Ouch!

Of course my average holding time is not 15 years because I have gradually built my holding up over time. And I have had the benefit of a steady stream of dividends over the years too.

SNOOPY

[troyvdh]

Thanks Snoopy re your declaration...I have two comments...maybe 3

...Its my belief that CEN intend to increase the divs
...The "noise" emanating out of the "left' will not eventuate ...even considering the ghastly prospect of another "9 years of nothingless' endured by NZ in previous times.
...That clyde dam aint going to be built anywhere somewhere else soon....

[Snoopy]

I see at the close today I am sitting exactly half way between the $4.71 closing bid and $4.75 ask. All my capital profits from holding since 1998 gone! Ouch!


Banked another dividend in the interim, and now the share price is $5.73! Who cares about all those other power company floats? Looks like CEN was the horse to back after all!

SNOOPY

[fish]

Banked another dividend in the interim, and now the share price is $5.73! Who cares about all those other power company floats? Looks like CEN was the horse to back after all!

SNOOPY

Fully share your view.
Best balance of generation sources.
In best position to take advantage of north/south transmission upgrades
Massive gas storage
Targeting the Best customers-those that pay on time-domestic for the discount
industrial-for good large contracts
Best track record.
I completely sold out quite a few years ago when they hit $10 so couldn't resist buying lots at their lows last year.
Planning to hold onto what ive got for my retirement

[troyvdh]

Giday ...am considering selling a few CEN shares...I have been a quite an adamant supporter of this company for well over a decade...however it has finally dawned on me that CEN (and probably the rest of them) are probably destined to be only income companies (for the shareholders) only.Me thinks that any capital gain/benefit (I own bits of all of all of them) only occurs at the start or soon after (CEN $11.33)...I cannot imagine a scenario where one power company suddenly sprints ahead of the pack...given normal market circumstances...
I note that CEN is trading just above the 100 day average.
Am just looking for the best time to exit is all...cheers

Where is Phaedrus when you need him ?

[Winston001]

The importance of utility businesses is that they are fundamental for modern living and continue to operate through good times and bad. They are boring and predictable but also safe.

From a risk management point of view, companies like Contact are core holdings. By all means sell, there are always far more interesting businesses on the stock exchange such as Xero and...Rakcon.

[horus1]

If you look overseas generation cos are not a good investment as alternative technological solutions are cheaper than them . They are not a good long term investment

[macduffy]

If you look overseas generation cos are not a good investment as alternative technological solutions are cheaper than them . They are not a good long term investment

.... and some of them are "cheaper" - as in shareprice - because their technology is still unproven in practical, economic terms. An example of this is the Australian solar energy company Dyesol - in which I've been invested off and on for yonks. They stumble from one funding crisis to another and somehow manage to survive but as for being an alternative investment to the likes of CEN - let's just say the jury's still out.

Suggestions on good long term investments in the alternative energy field would be appreciated.

:)

[Harvey Specter]

Giday ...am considering selling a few CEN shares...I have been a quite an adamant supporter of this company for well over a decade...however it has finally dawned on me that CEN (and probably the rest of them) are probably destined to be only income companies (for the shareholders) only.Me thinks that any capital gain/benefit (I own bits of all of all of them) only occurs at the start or soon after (CEN $11.33)...I cannot imagine a scenario where one power company suddenly sprints ahead of the pack...given normal market circumstances...
I note that CEN is trading just above the 100 day average.
Am just looking for the best time to exit is all...cheers

Where is Phaedrus when you need him ?Have you considered the timing and what impact the election if any would have. I have not looked recently but is there still an implied discount in the share price to account for the risk of a Labour Green Government? Add in Winston and his repurchase of the former SOE and CEN may see a run up post election.

Note: Just thinking out loud. I am a long term holder so have not looked to see if there is a build in discount. CEN is the small of my holding in all the power co's with the exception of my IPO allocation in GEN.

[Snoopy]

Giday ...am considering selling a few CEN shares...I have been a quite an adamant supporter of this company for well over a decade...however it has finally dawned on me that CEN (and probably the rest of them) are probably destined to be only income companies (for the shareholders) only.Me thinks that any capital gain/benefit (I own bits of all of all of them) only occurs at the start or soon after (CEN $11.33)...I cannot imagine a scenario where one power company suddenly sprints ahead of the pack...given normal market circumstances...
I note that CEN is trading just above the 100 day average.
Am just looking for the best time to exit is all...cheers

Where is Phaedrus when you need him ?


Phaedrus has gone because his job was done here. However it is not difficult to predict what he would be saying now. Firstly he would show you an historical chart showing the share price decline in CY2008 , pointing out the three sell signals you missed on the sawtooth ride down from the local peak of $7 as the share price declined all the way to the lower $4 range.

Then he would zoom in on the time since January 2012 and look at the slow and steady uptrend that remains intact to this day. What his chart would not show would be the steady stream of dividends paid out over that time. I am by no means a chartist, but it looks like the 'uptrend' is still in place. So why sell? I am pretty sure Phaedrus wouldn't if he had bought in during the first half of CY2012.

Don't be seduced by those others making big speculative bucks Troy. That kind of investing is not sustainable. You have been in for the long haul and so have I. Some think that Contact will always be a monolithic megaproducer of power but this isn't necessarily so. They are currently the leading power generator buying excess power produced by solar panels on peoples roofs. They are adaptable. I say stick with 'em, and I reckon thet Phaedrus would agree, judging by the chart..

SNOOPY

[Harvey Specter]

They are currently the leading power generator buying excess power produced by solar panels on peoples roofs.I wouldn't say being the market leader in a loss making business a good thing. There is a reason the other power company (cant remember which one) dropped their price, losing alot of their business to CEN.

Having said that, we are currently only talking in the 100's of consumers not 1,000's so not a biggy.

[Snoopy]

I wouldn't say being the market leader in a loss making business a good thing. There is a reason the other power company (cant remember which one) dropped their price,


It was Meridian. However, rather than drop their price Meridian introduced a two tier price. A very small amount of power they would buy at the original headline price. But after that the price paid for more pwer than that dropped back to a much lower level.



losing alot of their business to CEN.

Having said that, we are currently only talking in the 100's of consumers not 1,000's so not a biggy.


The point I was trying to make was that Contact are keeping their hand in the game of buying solar power. They will have the experience to quickly upscale should such purchasing become more profitable.

SNOOPY

[Harvey Specter]

The point I was trying to make was that Contact are keeping their hand in the game of buying solar power. They will have the experience to quickly upscale should such purchasing become more profitable.
Great from a PR perspective but it will never be profitable as you can buy of a generator for less than 10c, yet market rate for distributed solar generation appears to be 15c+. Dont be fooled by the rate shown on your bill as that includes transmission and network charges.

Further more, by definition, these customers will use less electricity (since they have solar) but when they do consume grid electricity it is when it is most expensive to generate (ie. fire up the peaker plants) even though they are still on a one rate plan which assumes consumption at off peak as well as on peak.

[Food4Thought]

Recently watched a program in regards to the electricity consumption (and income for electricity providers) in Australia. The trend was that forecasts, after a very long time of increasing consumption, has taken a backwards step, even with an increase in consumers. The number of people installing solar power has increased dramatically (due to a lower cost of installation). The move also comes with storage increases, more efficient and cheaper storage batteries, storing electricity for use in peak times (when prices are high anyway). When even better battery technology comes along (current talk about biological sugar-batteries) and the price starts to come down, I think there will be an even larger threat to electricity providers income, and subsequent bottom line figures. It is a talk of when, and I thought I'd throw the idea out there. (If it has been mentioned in previous posts/pages, forgive my lack of reading as this is something recent by the sounds of it). I for one am keen to get off the "grid" at some stage and seem to notice a growing trend in this area.

[horus1]

You are dead right, the day of the generator retailer has passed.The key is that customers will have choice. The Govt got out of 50% just in time and did not mention declining volumes in the prospectus's., which I believe was misleading

[Food4Thought]

Totally agree... didn't want to get into that... good choice in my eye they got out... I didn't buy as I think the future looks too uncertain and unpredictable... and looked over price (given level of risk vs reward). Ahhhh technology... what will come next.

[rbel038]

Contact results out. Interesting to note the board considering a capital return , given the lower forward investment needed.

Reading between the lines on Te Mihi it looks like the delay has been the result of things not going to plan. I hope contact put the hardword on the contractor to fix the problem rather than the alternative of using more steam from the resource. This would bring forward the makeup wells and other investment required at wairaki.

http://www.3news.co.nz/Contact-Energy-considering-capital-return/tabid/421/articleID/357306/Default.aspx

[fish]

Contact results out. Interesting to note the board considering a capital return , given the lower forward investment needed.

Reading between the lines on Te Mihi it looks like the delay has been the result of things not going to plan. I hope contact put the hardword on the contractor to fix the problem rather than the alternative of using more steam from the resource. This would bring forward the makeup wells and other investment required at wairaki.

http://www.3news.co.nz/Contact-Energy-considering-capital-return/tabid/421/articleID/357306/Default.aspx


they are forecasting capex of $100m a year compared to $500m a year a few years ago-hence a capital return is possible in the next few years.
17% increase in profits this year and increased dividend-with full imputation credits

[Snoopy]

17% increase in profits this year and increased dividend-with full imputation credits


Underlying profit of $227m equates to an eps of 30.9c.
Dividends paid out over the period FY2014 amounted to 25c.

At a share price of $6 this is a net dividend yield of 0.25/6= 4.2%, equivalent to a gross yield of 6%. I think $6 for CEN is looking like fair value.

What I found interesting was the margin (net profit/turnover) though:

$227m / $2,446m = 9.3%

This is the highest margin achieved in the last seven years (up from 8.1% last year and 6.6% the year before that). That is pretty impressive.

FY2015 will see a full year of the benefit from the new geothermal Te Mihi power station. I think Contact are in a good space.

SNOOPY

discl: hold CEN

[Snoopy]

they are forecasting capex of $100m a year compared to $500m a year a few years ago-hence a capital return is possible in the next few years.


The debts at CEN are high in absolute terms. Total bank debt is $1.294 billion. In terms of 'minimum debt repayment time' (net profit /total bank debt) the figure is:

$1,294m/ $227m = 5.7 years

I would classify the indebtedness of CEN as 'medium', certainly not out of order for a power gentailer. I remember about five years ago there was speculation of a capital return. Instead Contact used the dividend reinvestment plan, and a small cash issue, to raise new capital and build Te Mihi.

Personally I would like to see CEN pay down debt, as the power market tightens up with more supply and a flat demand. CEN may need to spend money to mothball some high cost generation assets. They wouldn't want to be caught out being short of capital again.

SNOOPY

[Snoopy]

17% increase in profits this year


I see the 'normalised profit' includes a $43m compensation payment, received in relation to the teething problems and subsequent late start up of Te Mihi. I am not sure that I agree with that treatment of profit. Take that payment off and 'normailsed profit' reduces to:

$227m - $43m*0.72 = $196m, a little down on the $202m earned last year. Still, $196m is still an eps of 26.7c. More than enough to cover the dividend paid out over the period.

SNOOPY

[troyvdh]

Snoopy....are we alone in appreciating the re rating of CEN...me thinks that the prospect of increased divs and a possible a juicy return of capital....has finally dawned on folk.....finally cheers

[troyvdh]

...not wishing to appear as one who goes on....but what does CEN need to do to warrant debate....

[777]

...not wishing to appear as one who goes on....but what does CEN need to do to warrant debate....

Get continuous mention on radio talkback for allegedly getting Kerre McIvor's bill wrong.

[troyvdh]

Thanks 777 but investors surely would not take into consideration a tirade of whatever (am not a regular listener of talk back radio)...when making investment decisions...surely not...what im saying is CEN SP performance has been quite stellar in recent times...and Im thinking that's because of recent (like over six months ago) of the company rewarding SH in various ways...but folk seem reluctant to debate/discuss....same....perhaps now that Im 58..."old companies"..are less attractive .....cheers

[babymonster]

It is one of my best stock. I got some at 655 which was almost highest point at the time. Still, it can go higher

[Toasty]

I still have my shares from the original issue. Now up by 164% if my portfolio report is correct. I never really paid much attention to them because I received them before I was really investing seriously. I also had the typical mentality that as they had achieved in excess of $9 per share in the past I had now lost money when they pulled back. I have only begun to appreciate them in recent years as I have built a portfolio around them.

I haven't even included the non stop revenue stream that they have delivered.

[RGR367]

The only interesting about CEN now is will they really return some capital to shareholders. Otherwise, it's one of those really boring now but profitable investments especially if you started with it on their IPO and had accumulated from there :t_up: Yeah, what will get this thread still moving on?

[babymonster]

The only interesting about CEN now is will they really return some capital to shareholders. Otherwise, it's one of those really boring now but profitable investments especially if you started with it on their IPO and had accumulated from there :t_up: Yeah, what will get this thread still moving on?
Yes, ipo is more interesting.

[Jantar]

..... Otherwise, it's one of those really boring now but profitable investments ......Up 8% just this month, and a $0.12 increase just today. Does someone know something? Or is it overbought?

[bull....]

probably go higher qe japan an europe money will flow here 4%+ divs compared to there 1% less at home looks dam good

[babymonster]

good vol too.. lost of buy at 7.00

[troyvdh]

Giday babym.....don't think so...no instos today.However this could change ....around about closing time.
Remember...healthy volumn going up...that's good....little volumn going down also good (or better).
cheers

[BFG]

Up 8% just this month, and a $0.12 increase just today. Does someone know something? Or is it overbought?

With US rates staying low for the foreseeable future (Fed to confirm tonight), NZ and RVA rates possibly being slashed (???), Euro & Japan QE under full steam as well as the kiwi falling the search for dividend yields is pushing all of these solid earners sky high. Enjoy the run :)

[babymonster]

With US rates staying low for the foreseeable future (Fed to confirm tonight), NZ and RVA rates possibly being slashed (???), Euro & Japan QE under full steam as well as the kiwi falling the search for dividend yields is pushing all of these solid earners sky high. Enjoy the run :)
Yes, all the high div stocks are crazy today, Cen, spark, mighty river ect

[babymonster]

Giday babym.....don't think so...no instos today.However this could change ....around about closing time.
Remember...healthy volumn going up...that's good....little volumn going down also good (or better).
cheers
Why little vol going down is good?

[babymonster]

Wondering what will happen tomorrow?

[BFG]

Why little vol going down is good?

Shows little follow through from sellers (ie sentiment is still good).

[babymonster]

good day so far for CEN.. wonder i shall cash my profit.. more than 10% in 3 weeks.. or shall i wait for the dividend..

[babymonster]

1H2015 not good....

[Jantar]

Not as bad as it looks. Increased depreciation from bringing TeMihi into the portfolio and a sudden large drop in retail customers following the changeover to their new billing system. But reading the chairman's comments, that has already started to change back in CEN's favour.

It appears CEN were ready for this result by concentrating on cash flow rather than earnings for the past 6 months.

[babymonster]

Hopefully they can do better in 2H, just like a few years back.

[jonu]

Not as bad as it looks. Increased depreciation from bringing TeMihi into the portfolio and a sudden large drop in retail customers following the changeover to their new billing system. But reading the chairman's comments, that has already started to change back in CEN's favour.

It appears CEN were ready for this result by concentrating on cash flow rather than earnings for the past 6 months.

I think it is every bit as bad as it looks. What the hell does "fair value for financial instruments" mean? Excuse the pun but it's a shocker.

Power companies have been justifying their price increases for years on the basis of building future capacity. Trouble is there is a glut of supply which could get worse if the ali smelter goes offline. (Worse being better for consumers!)

[IAK]

Could get even worse for the big power co's in the future..
"Tesla’s next innovation could take you off the electric grid. The electric car manufacturer is planning to unveil a new lithium-ion battery pack that homeowners could buy to store and supply their own energy. “We have the design done, and it should start going into production in about six months or so,” Musk said.
http://time.com/3707137/tesla-house-battery/

[craic]

They're paying a dividend, what more do you want. Look at all the poor frustrated posters on the PBU? thread, 840 pages of wind and urine and not a cent to show for it. I think we are still CEN customers.

[whatsup]

They're paying a dividend, what more do you want. Look at all the poor frustrated posters on the PBU? thread, 840 pages of wind and urine and not a cent to show for it. I think we are still CEN customers.

PBU ?? help wanted

[Harvey Specter]

They're paying a dividend, what more do you want. Dividend maintained. capital distribution being considered. I thought it was well signalled they were going from a period of high profits to high cashflow.

CEN is a cashcow so lets keep milking it.

[babymonster]

Dividend maintained. capital distribution being considered. I thought it was well signalled they were going from a period of high profits to high cashflow.

CEN is a cashcow so lets keep milking it.

or buy something can growth...

[babymonster]

PBU ?? help wanted

i think its PEB

[newtrader]

Do we expect other gentailers following CEN with reporting subdued EPS?

[bull....]

fcf was well up on last half, poor profit result this time is mainly due to some poor hedging or swaps

[Harvey Specter]

or buy something can growth...I see CEN as an income stock. I hold plenty of other growth stocks.

[Beagle]

Do we expect other gentailers following CEN with reporting subdued EPS?

Market appears to think so but I'm not convinced. To me its looks like there were enough specific factors affecting CEN to cause most of this drop. Happy holder of GEN.

[craic]

It's a simple equation. Bring up the three-month chart and you will see that everything was humming along including the price at 740. Then some people doing the figures see the problems in the numbers and people who know people begin to bail out quickly and down comes the price. Today is just when you and I are allowed to know. I'm probably wrong, even paranoid but who knows

[Jantar]

It's a simple equation. Bring up the three-month chart and you will see that everything was humming along .......
Yes Humming along nicely in a range of $6:20 to $6:40 right through November, December, and into early January. Then for some reason the price just started to skyrocket. I asked then, on this thread, if anyone knew of a reason for the sudden increase. No-one seemed to.
Today it has corrected itself back to $6.40, so still at the upper end of what it was 3 months ago, and still paying the same dividend. So what is the issue?

[Harvey Specter]

It's a simple equation. Bring up the three-month chart and you will see that everything was humming along including the price at 740. Then some people doing the figures see the problems in the numbers and people who know people begin to bail out quickly and down comes the price. Today is just when you and I are allowed to know. I'm probably wrong, even paranoid but who knowsMRP and MEL follow a similar pattern so im guessing the start of the decline (at least in part) was an industry issue.

[troyvdh]

Jantar...imho nothing wrong with a healthy amount of paranoia...for me selling a few at 730 was ...like I said at the time my neck just got so sore looking straight up and thought this is nuts.cheers troy

[PSE]

Was the poor result due to issues at te mihi?. The corporatised industry often seems to forget about the power stations as not being important LOL.
This is what happens when you lay off all the good engineers and desperately overload the remaining handful profits will accrue to shareholders but things keep blowing up (literally). Lots of jobs in Wellington shifting paper, but the last significant apprentice intake was by then NZED. The captive consumer will continue to pay for the inefficiencies, like two 57% efficient CCGTs sitting idle while genesis runs 250MW of 30% efficient coal and destroys the climate.
From an investment perspective Contact has been quite savvy moving out of baseload thermal, they will not suffer much if tiwai shuts down and won't need any big capital spend soon.

[Snoopy]

Could get even worse for the big power co's in the future..
"Tesla’s next innovation could take you off the electric grid. The electric car manufacturer is planning to unveil a new lithium-ion battery pack that homeowners could buy to store and supply their own energy. “We have the design done, and it should start going into production in about six months or so,” Musk said.
http://time.com/3707137/tesla-house-battery/

The above article is all about Elon Musk bulking up potential demand from his new mega battery factory, all in the aim of reducing battery pack cost for his (and others) electric cars. I don't believe utilising lithium iron batteries as a pre-charged power source for homes is a threat to power company earnings. The existing power companies might equally gain by adopting this technology themselves. You could equally well argue that with the increase of the electric car population that cheaper battery packs will allow, could mean the traditional generators will be able to sell more power to consumers at what are normally low power demand times. I know that both Joan Withers (Chair) and Fraser Whineray (CEO) of Mighty River Power are already sold on just such a concept.

SNOOPY

[Harvey Specter]

I know that both Joan Withers (Chair) and Fraser Whineray (CEO) of Mighty River Power are already sold on just such a concept.Not just gentailers but network companies too. For remote locations, rather than upgrading lines to cope with high demand that is just 1 hour a day, they could locate battery packs close to the demand to peak-shave power demand on their network.

Household batteries are also the perfect use for old battery packs. As they start holding less than (say) 80% original capacity, they could be installed into the home (where the full capacity isn't strictly needed) and a new, higher capacity battery installed in the car. In 5 years or so, all tesla users will want a replacement battery pack.

[babymonster]

never mind, i did miss out the 7.30... being too greedy.. not i will have to wait for the next round..

[PSE]

Power companies will benefit from increased demand from electric cars. At 30c a kilowatt hour residential solar is not competitive with geothermal at 9c a kilowatt hr.
Doesn't matter what the losers with their snout in the trough (withers et all) think, you could sack them all tommorrow and the run the plants with a merit order (cheapest first). As we used to do.
Reality is that peak electricity demand in NZ is in winter when solar generation is at a minimum, so even if solar was to become competitive (who can say) NZ will still need an electricity grid and power companies.
We seem to be stuck with the market ideology despite the fact that the idea was flawed from the start and has proven massively wasteful.

[Jantar]

Power companies will benefit from increased demand from electric cars. At 30c a kilowatt hour residential solar is not competitive with geothermal at 9c a kilowatt hr.
Doesn't matter what the losers with their snout in the trough (withers et all) think, you could sack them all tommorrow and the run the plants with a merit order (cheapest first). As we used to do.
Reality is that peak electricity demand in NZ is in winter when solar generation is at a minimum, so even if solar was to become competitive (who can say) NZ will still need an electricity grid and power companies.
We seem to be stuck with the market ideology despite the fact that the idea was flawed from the start and has proven massively wasteful.
In a way we do still have a merit order, but now the companies set their own merit through the offer price.

The basic idea of a market was a good one, but unfortuantely for New Zealand, the laws of physics and the laws of economics do not match. It was the accounants who won out over the engineers and operators.

[PSE]

Got a lot of time for you Jantar and traders in general (nothing personal) but the fact of the matter is that the electricity market is a natural monopoly - you can't build a competing electricity grid so the market is very much an artificial one.
Agree each company has a merit order by which the gentailers use their own assets efficiently. Unfortunately this often leads to inefficient overall outcomes, as per the huntly coal running ccgt off situation that is presently going on.
Mothballing CCGTs while Todd energy builds new peakers this is a huge waste. I don't know the mechanics of the market but outcomes like these are plain to see.
Frequency keeping with a CCGT, thats not as efficient as hydro. Gaming of the reserves market, yall have made hundreds of millions there.. genesis ramping down one station then ramping up another to get constrained off payments. I don't blame you this is your job to create efficient outcomes for your companies, on the other hand we shouldn't pretend these outcomes are the most efficient overall.

[PSE]

There should be a balance between traders, accountants and engineers aye jantar - I don't want to rule the world and am sure this would not be an efficient outcome either :)

[Jantar]

......- you can't build a competing electricity grid so the market is very much an artificial one.
Agree each company has a merit order by which the gentailers use their own assets efficiently. Unfortunately this often leads to inefficient overall outcomes, as per the huntly coal running ccgt off situation that is presently going on.......
When I was a System Controller we used to run the system as if it was a competitive market, with the merit order setting the prices and the hydrology and fuel availability setting the limits on how much each station would generate in a day. There would be times that we would have dearer generation running while cheaper was sut down, but that was to smooth the transitions over time periods, maintain efficiency and prevent the current ludicrous situation where dispatch instructions happen every 5 minutes and cause plant to run inefficiently.

I believe Contact are running plant the way they are to avoid wasting fuel while running inefficiently.

[fish]

Looks like the cen results were not a shock to the market but what drove the price down was the news that CEN were looking at spending megabucks building geothermal overseas.
Is this true?
If true can we do anything to stop it?

[Harvey Specter]

If true can we do anything to stop it?Not if 51% shareholder Origin wants it: http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11403030

It is a fundamental shift in the strategic direction of the company, and not a step that should be taken by the directors. MRP's failure should be seen as a lesson - NZ expertise does not necessarily result in success.

[macduffy]

Not if 51% shareholder Origin wants it: http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11403030

It is a fundamental shift in the strategic direction of the company, and not a step that should be taken by the directors. MRP's failure should be seen as a lesson - NZ expertise does not necessarily result in success.

That's true, there are plenty of cautionary tales about ill-advised expansion overseas. But I wouldn't rule it out in the right circumstances - after all, Infratil did pretty well out of their development of power schemes in Australia - and selling out at an opportune time.

[macduffy]

Not if 51% shareholder Origin wants it: http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11403030

It is a fundamental shift in the strategic direction of the company, and not a step that should be taken by the directors. MRP's failure should be seen as a lesson - NZ expertise does not necessarily result in success.

That's true, there are plenty of cautionary tales about ill-advised expansion overseas. But I wouldn't rule it out in the right circumstances - after all, Infratil did pretty well out of their development of power schemes in Australia - and selling out at an opportune time.

[Beagle]

Not if 51% shareholder Origin wants it: http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11403030

It is a fundamental shift in the strategic direction of the company, and not a step that should be taken by the directors. MRP's failure should be seen as a lesson - NZ expertise does not necessarily result in success.

I think what this highlights is the age old adage of being careful who you get into bed with...in more ways than one :) With GEN and AIR at least you know the Govt has the company and overall N.Z. interests at heart.
Origin will only be interested in what's best for Origin. Sell CEN some of their overseas "pup" interests for top dollar ?

[Harvey Specter]

That's true, there are plenty of cautionary tales about ill-advised expansion overseas. But I wouldn't rule it out in the right circumstances - after all, Infratil did pretty well out of their development of power schemes in Australia - and selling out at an opportune time.That's true, there are plenty of cautionary tales about ill-advised expansion overseas. But I wouldn't rule it out in the right circumstances - after all, Infratil did extremely badly out of their development of airports in Europe - and 'selling' out only when they found someone willihg to take on the liability.

Though you do make a good point - trustpower has also done ok with their windfarms in Australia.

[iceman]

I wonder how CEN's expertise in geothermal development compares against the international companies they will be taking on in Indonesia and elsewhere, companies/countries that have been doing this much longer than Contact.
I'm glad I sold out awhile back as I would have serious concerns about these plans if I still were a shareholder

[PSE]

Wow yeah thats a shocker being led by origin into more spending, dissapointing.
In theory Contact Energy built Wairakei which is one of the oldest geothermal stations in the world, the company no longer has the competence in house to design and build.
For Te Mihi they paid to train consultants to make expensive mistakes.
A lot of good experience does remain in NZ in Contact Energy and other places, we are good at geothermal. I would suspect Origin would use Contact Energy as a pilot for Geothermal to see how it goes with shareholder funds - like they did with SAP.

[horus1]

The key factors are that demand is going down, solar is coming and batteries are also coming . Going off shore is nuts .A bad result.

[babymonster]

Capital return is better....

[Beagle]

The above article is all about Elon Musk bulking up potential demand from his new mega battery factory, all in the aim of reducing battery pack cost for his (and others) electric cars. I don't believe utilising lithium iron batteries as a pre-charged power source for homes is a threat to power company earnings. The existing power companies might equally gain by adopting this technology themselves. You could equally well argue that with the increase of the electric car population that cheaper battery packs will allow, could mean the traditional generators will be able to sell more power to consumers at what are normally low power demand times. I know that both Joan Withers (Chair) and Fraser Whineray (CEO) of Mighty River Power are already sold on just such a concept.

SNOOPY

I agree. If anything I think electric cars will boost demand for electricity and the effective lifespan of a lithium ion battery is far more closely correlated with a vehicle than it is with a house.
The suggestion that individuals in significant volume will put in expensive domestic solar installations with solar panels, invertors and lithium ion battery packs all having varying limited lifespans seems remote when its possible to buy electricity for as little as 17.5 cents per kwh. OTOH when fuel inevitably goes back to $2.30 per litre cars like the Nissan Leaf which can be had for as little as $33,000 (as a Nissan N.Z. demonstrator) start to make a reasonably good case for themselves.

[tim23]

I sold of a few of mine the other day at $7.14 was holding rest in anticipation of capital return, what a shocker - the charts looked good but I guess they can't guess bad announcements?

[macduffy]

I sold of a few of mine the other day at $7.14 was holding rest in anticipation of capital return, what a shocker - the charts looked good but I guess they can't guess bad announcements?

They can't "guess" them but on occasions they give a clue - "informed" selling/buying pressure, heavy volumes etc. Not on this occasion, though!

[rbel038]

The key factors are that demand is going down, solar is coming and batteries are also coming . Going off shore is nuts .A bad result.

demand is going down in NZ , what origin see is the crazy demand increase expected in indonesia and africa over the coming decade. Something like 2GW+ geothermal expected to be built in indonesia over the coming years and all governments are trying to entice overseas partners. Contact could do well , but whether its a better decision than returning capital to shareholders , who knows. It would certainly keep the geothermal lot busy after the inevitable dead patch now that te mihi is done.

[PSE]

Rbel the question on capital return is are shareholders better managers of their money than the company? A strong business case would be needed to prove that the directors can spend my money better than I can but with CEN all we seem to have is a geothermal pipe dream.
Returning money to shareholders forces management to be efficient with the resources entrusted to them.
There are surely not 100 people in Contact with special geothermal development skills as Dennis seems to think, they put the work out to consultants and contractors.

[PSE]

Given there are only 250 people working on all the sites and 750 in Wellington I don't think these so called experts are essential.

[troyvdh]

Giday.As seasoned followers know.In the past there have been 2 (?) attempts by ..I believe Origin for a takeover of CEN.This was supported by at least 1 possibly two directors of CEN.
Again ..it would be appreciated if anyone knows if Origin would want/be in a position to buy ...or hey ...even sell there holding.

Given that $ parity is looming I suppose that will not occur (buying ).

Actually come to think of it I wonder if we all would have been better accepting the "offers".....nah....just joking...I for one would never venture down the Clutha Again if the ozzies owned the dam.

PSE. 750 !!!!!! in Wellington wow ..are you sure.

[macduffy]

It doesn't seem that long ago that Origin were said to be in need of a capital injection for their Queensland gas to LNG project. The speculation then was that they might look to sell their stake in CEN to raise the necessary. If that's still the case they may be quite receptive to receiving their share of a capital return from CEN? Strong NZD would make it a good time for that.

[PSE]

Hows this for wild speculation macduffy CEN buys ORG geothermal prospects???
I have nothing to base it on just talking smack :)
The last Contact Energy CEO was head of ORG geothermal development last I checked and still on the CEN board.
As of the last round of layoffs troydvh yes this is what the HR guy told me when I asked why the need to be laying off so many essential site personnel from the skeleton crew running the sites.
I think this is typical among the gentailers though and does not make CEN a worse investment prospect, it is protected because the electricity market is an oligopoly and doesn't need to be efficient. CEN has done well building peakers and gas storage and increased geothermal for base load which was the savvy thing to do.
It would be highly dodgy for CEN to transfer money to origin for geothermal development in third world countries. In indonesia for example I have heard of operators cutting the blades off steam turbines to balance them out when vibrations increase. Needless to say not good for efficiency or safety, probably because consumers don't have money to pay for power like the lovely captive NZ market.

[Harvey Specter]

Hows this for wild speculation macduffy CEN buys ORG geothermal prospects???
more likely co invest, or be the new equity partner, giving the high risk early return to origin, and leaving CEN with the low return implementation (still high risk since origin will make them pay to much for it)

[macduffy]

Hows this for wild speculation macduffy CEN buys ORG geothermal prospects???

Perhaps. And I suppose ORG could dress it up with "expert" valuations to make it a good deal for CEN! Minority NZ shareholders wouldn't like it - but then, we're minority shareholders. Let's hope it doesn't happen!

[PSE]

If we hear noises like this it is corruption shareholders should oppose it. It would only take a little daylight to expose it, if the directors were to try it they would put themselves in a vulnerable position.
The large institutions will I think back a call to see a business case and as a large listed company there is a lot minority holders can do to defend their interests.

[iceman]

A good summary by Patrick Smellie http://www.stuff.co.nz/business/opinion-analysis/66426305/hell-hath-no-fury-like-a-fund-manager-foiled

[PSE]

Nice article iceman.
In the last line - I would translate as no prospect of material growth in NZ means they are taking speculative opportunities at the bidding of a majority shareholder who has already wasted money on the Origin SAP pilot rollout and Rockgas takeover.
So the company has a low profitability on assets employed, low growth prospects and is asking shareholders to take a punt with their cash on geothermal development (after paying consultants to cock up te mihi) in third world countries without providing a business case.
Shareholders should get their cash back, they can definately manage their money better than this lot. Both the capital in plant and the cash.
I am not holding any of the gentailers anymore, all too expensive - capital better employed elsewhere.

[PSE]

A different bunch of consultants for each power station too, LOL.

[IAK]

More comment from Chris Adams. What a joke.

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11404818

[huxley]

http://m.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11405372

Interesting reading.

[Harvey Specter]

The independant directors really are on notice. That's if they are truely independant and don't just panda to Origin to maintain their cushy fees.

[Snoopy]

http://m.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11405372

Interesting reading.

I own both Contact Energy (CEN) and Mighty River Power (MRP) because I like the exposure to NZ geothermal energy that both have. MRP have wound back their overseas exposure to geothermal, where as Contact are on the point of ramping it up. Personally I see it as a good thing that NZ can sell their geothermal power development experience overseas.

I have an income bias in my share portfolio, but am happy to look at growth opportunities when they are priced right. I will make a note to myself to look at what Origin are doing in Indonesia. But if a business case can be made, I am not at all averse to Contact going in there. For those who don't like it, sell CEN and buy MRP. For those who do, just stay with Contact. The choice is there. And as an investor you don't even have to make the choice if you don't want to. Just own both like I do, if you believe both strategies can work.

SNOOPY

[fish]

Snoopy I own a lot of cen and GEN-I have a margin loan that enables me to have over 100,000 of both.
At one time I owned a lot of TTP-they acted against the interests of minor shareholders knocking the SP-then they made a takeover offer that was inadequate.
A group of us on sharetrader objected and took them to arbitration-they lost.
They appealed-and lost in the high court having to pay costs and a fair price.
A great victory for NZ shareholders.
I am not a lawyer but I suspect if CEN buys overvalued assets from ORIGIN that entails total spending overseas of 1 billion there will be legal remedies which I for one will be seeking.
I suspect there are a few lawyers on this thread that could share their knowledge.