Contact Energy - CEN Chart

[fish]

Narrow-moat-rated Mercury NZ posted record first-half EBITDA of NZD 301 million, up 11% on the same period last year. The firm benefited from ideal weather conditions, with plenty of rain in the North Island boosting its hydroelectric production, while low South Island rain kept the wholesale price high. Full-year guidance for EBITDA of NZD 530 million is unchanged, and we think the firm can do a little better. We make minor adjustments to our earnings forecasts but maintain our NZD 3.60 fair value estimate. We also adjust our historic and forecast dividend numbers to now include special dividends as well as ordinary dividends.

[Snoopy]

Snoopy my 2 biggest holdings are mercury first then contact so obviously I admit bias towards mercury.
You have analysed the past but I look more to what is happening now and the future.
CEN losing customers,mercury gaining.


I would guess a large part of this relates to just who has excess electricity available. If Contact have to fire up their thermal generation to attract new customers, it may not pay them to do so. With Mercury having strong power inflows, they can probably afford to offer new customers a sweeter contract.



SI prices for power much lower than NI.


I prefer to check the EMI website at both Huntly

https://www.emi.ea.govt.nz/Wholesale/Reports/W_P_C?DateFrom=20180308&DateTo=20180314&RegionCode=HLY0331&RegionType=POC&TimeScale=TP&WeightedBy=NODES&_si=p|0,v|3

and Benmore

https://www.emi.ea.govt.nz/Wholesale/Reports/W_P_C?DateFrom=20180308&DateTo=20180314&RegionCode=BEN2201&RegionType=POC&TimeScale=TP&WeightedBy=NODES&_si=p|0,v|3

to get clarification of that. Let's look at an assortment of dates and times over the last week.



Benmore Node 2201Huntly Node 2201Difference%ge Difference


Wholesale Price 5pm 14-03-2018$52.34/MWh$64.26/MWh+$11.92/MWh+22.8%


Wholesale Price 6pm 14-03-2018$49.36/MWh$61.92/MWh+$12.56/MWh+25.4%


Wholesale Price 7pm 14-03-2018$23.78/MWh$28.77/MWh+$4.99/MWh+21.0%


Wholesale Price 8pm 14-03-2018$71.20/MWh$83.34/MWh+$12.14/MWh+21.0%


Wholesale Price 9pm 14-03-2018$71.48/MWh$81.96/MWh+$10.48/MWh+17.0%


Wholesale Price 10pm 14-03-2018$41.73/MWh$46.22/MWh+$4.49/MWh+10.8%


Wholesale Price 11pm 14-03-2018$69.63/MWh$73.51/MWh+$3.88/MWh+5.6%



Looks like you are right fish.



Mercury is having a bumper year and they are very green with very cheap to produce hydro near to Auckland.
A valuation should mention all the factors


The problem is a bumper year this year does not necessarily translate to a bumper year next year. Much better I think to look over the weather cycle and consider what might happen over a period of years. This is what I have done using my 'Business Cycle Earnings Yield' figures.

The fact that MCY are very green (hence low carbon credit costs) and can produce power they can feed near the Huntly node have all been considered, because the profit figures produced are a calculated result of all these inputs.

SNOOPY

[Snoopy]

I think it is worth noting the similarities that exist in portfolio capacity between the MCY and CEN hydroelectric and geothermal power stations.





Mercury Energy HydroStation Generation CapacityMercury NotesContact Energy HydroStation Generation Capacity


Aratiatia78MWUpgrade by FY2020Hawea Gates17MW


Atiamuri74MWClyde432MW

[/TR]

Waipapa54MWRoxburgh320MW

[/TR]

Ohakuri106MW


Whakamaru100MWUpgrade to 124MW by FY2020


Arapuni196MWReceived 12MW upgrade in FY2011


Maraetai 1 & 2352MW


Karapiro96MW


Total1056MWTotal769MW







Mercury Energy GeothermalStation Generation CapacityMercury NotesContact Energy GeothermalStation Generation CapacityContact Notes


Kawerau100MWOhaaki60MW


Mokai (25% owned)112MWTe Huaka28MWCompleted FY2010


Rotokawa34MWRefurbished FY2015Wairakei132MW

[/TR]

Nga Awa Purua (65% owned)138MWCompleted FY2010Poihipi65MW


Ngatimariki82MWCompleted FY2014Te Mihi166MWCompleted FY2014


Total466MWTotal451MW



Note that I have left out Contact's gas fired power generation capacity in this comparison. I did this becasue the reason for this comparison is to estimate the 'hidden value' that might be on Contact's balance sheet. Thermal stations usually do not have hidden value as in the medium/longer term they are likely to be phased out of the power supply picture.

A substantial difference between the two companies is that Mercury makes regular adjustments to the value of its generation assets whereas Contact Energy does not. These adjustments have strengthened the balance sheet to the extent that Mercury has build new power stations (e.g. Ngatimariki) without raising new capital. I think Contact could do the same. Given the similarity of the renewable generation portfolio, it seems likely that Contact is sitting on a substantial 'hidden asset' (a potential revaluation of the renewable power portfolio), should management ever decide to take advantage of it, as Mercury management has done. But how much hidden value is there? That is the question I want to answer next.

The weakness in the analogy is that Mercury have upgraded their hydro stations in recent years and have an ongoing program to do more. This will result in a real increase in generation capacity. It is questionable, given Contact's hydro stations are much newer that they can do the same.

SNOOPY

[Jantar]

Mercury Energy Hydro

Station Generation Capacity

Mercury Notes

Contact Energy Hydro

Station Generation Capacity



Aratiatia

78MW

Upgrade by FY2020

Hawea Gates

17MW



Atiamuri

74MW


Clyde

432MW



Waipapa

54MW


Roxburgh

320MW



Ohakuri

106MW




Whakamaru

100MW

Upgrade to 124MW by FY2020



Arapuni

196MW

Received 12MW upgrade in FY2011



Maraetai 1 & 2

352MW




Karapiro

96MW




Total

1056MW


Total

769MW








Mercury Energy Geothermal

Station Generation Capacity

Mercury Notes

Contact Energy Geothermal

Station Generation Capacity

Contact Notes



Kawerau

100MW


Ohaaki

60MW



Mokai (25% owned)

112MW


Te Huaka

28MW

Completed FY2010



Rotokawa

34MW

Refurbished FY2015

Wairakei

132MW



Nga Awa Purua (65% owned)

138MW

Completed FY2010

Poihipi

65MW



Ngatimariki

82MW

Completed FY2014

Te Mihi

166MW

Completed FY2014



Total

466MW


Total

451MW




...

SNOOPY
A few errors in some of that station capability data.

For Mercury: Ohakuri is 112 MW, and I have seen 116 out of it with a high lake level first thing in the morning.
Waipapa is 51 MW, but again 54 is possible under perfect conditions

For Contact: The Hawea Gates project was consented, but is not progressing at this time.
Clyde is 464 MW. The 432 MW figure was due to a resource consent limit that was lifted in 2007.
Ohaaki was commissioned as a 100 MW station, but due to steamfield depletion is now only capable of 48 MW.
Wairakei is able to manage 145 MW as a steady state generation value.

[fish]

Thanks snoopy and jantar.
so mercury has a lot more hydro and a little more geo.
Do we have to allow for transmission loss to get contacts hydro to the North?

[Baa_Baa]

Could I ask a question not shareholder related, probably of Jantar who seems well informed?

Specifically for lake Ohakuri, it has been noticed that lake levels recently over the past 6-12 months have been consistently allowed to rise to extraordinarily high levels, sometimes say 30+cm above what has in the past been 'normal' high levels, flooding fixed jetty's and low lying plains at lake edge rendering them useless for long standing infrastructure and some recreational facilities.

Do you know whether there is a deliberate policy to 'overfill' Ohakuri, perhaps to eek out a longer daily period of generation than has been in past times? It seems that the norm has changed to higher highs and higher lows, though it's not clear whether it is deliberate (as the levels are carefully controlled), or long term.

TIA
BAA

[Jantar]

....
Do you know whether there is a deliberate policy to 'overfill' Ohakuri, perhaps to eek out a longer daily period of generation than has been in past times? It seems that the norm has changed to higher highs and higher lows, though it's not clear whether it is deliberate (as the levels are carefully controlled), or long term.

TIA
BAA I would be pretty sure that Mercury would not overfill any of their lakes. The max and min levels are controlled by resource consent limits, and it is possible that they are simply operating closer to those limits. In the late 1970s all Waikato lakes were lowered due to dam safety concerns, and dam safety permission was granted to raise them back to their original levels in the mid 1990s. Possibly the consent conditions have been changed to finally allow that to happen. You could ring the Mercury Control Room in Hamilton and ask to talk to their Hydrologist for up to date information

[horus1]

The Govt has announced a review of the electricity industry.It may affect things.

[Snoopy]

Wairakei is able to manage 145 MW as a steady state generation value.


Jantar, I wonder if you would clarify something on 'Wairakei' for me, if you can help!

'Wairakei' I think has two meanings in this context. Firstly there is the Wairakei 'power station'. Secondly there is the Wairakei 'steam field'. The Wairakei steam field actually powers three of Contact's power stations: Wairakei, Poihipi and Te Mihi. The newest of those. Te Mihi was commissioned principally because Contact has permission to take more steam from the Wairakei steam field then they were using. Te Mihi was a neat way to take up all of their consented steam. However the net gain was not expected to be 116MW. The trade off was that some of the steam that used to go into the old Wairakei power station was to be shuffled off to operate the new more efficient Te Mihi. However, once Te Mihi was commissioned, the capacity the original Wairakei power station apparently was not reduced.

Is it possible to run all three stations that feed on the Wairakei steam field (Wairakei, Poihipi and Te Mihi) together generating a combined 132MW +65MW + 166MW= 363MW? Or is the combined generating capacity of all three rather less than this?

TIA

SNOOPY

[Snoopy]

A few errors in some of that station capability data.

<snip>

For Contact: The Hawea Gates project was consented, but is not progressing at this time.


Thanks for that. Although small in absolute terms, it seemed to me like a no brainier, when mentioned in the 2011 capital raising prospectus, that it would go ahead. It is part of the feeder system that ultimately ends up in the Clyde dam after all. Since the Hawea dam already exists, I woudl have thought there would be little extra incremental cost to sticking a turbine in there. Can you offer any insight as to why the project was put on ice?



Clyde is 464 MW. The 432 MW figure was due to a resource consent limit that was lifted in 2007.


Thanks for that. I notice on the Contact website:

https://contact.co.nz/aboutus/our-story/our-powerstations

that Clyde is still listed as having a generation capacity of 432MW. If what you say is correct, it is very poor that the website has not been updated when Contact have had ten years to do so! There is possibly more hidden value here than I suspected!



Ohaaki was commissioned as a 100 MW station, but due to steamfield depletion is now only capable of 48 MW.


I notice on the Contact website link above, the capacity of Ohaaki has been omitted!

On page 23 of the international presentation dated April 2017,

https://contact.co.nz/-/media/contact/mediacentre/reports-and-results/financial-results-and-presentations/2017-international-roadshow-presentation.ashx?la=en&hash=8941B4C093A9837A589103BA6A53870CBBC16D06

the capacity of Ohaaki was listed as 50MW. That was a year ago, so has Ohaaki declined even further? Is three no drilling program that can hope to restore generation capacity to close to the 100MW design capacity?

SNOOPY

[Snoopy]

Gearing does vary a bit over the business cycle. Contact has indicated that they are currently in a 'pay down debt' part of the curve. But there was a time this decade, dating back to the 2011 capital raising, that Contact had a chance to optimize it's gearing.

The main stated purpose of the June 2011 Capital raising was to build the planned Te Mihi power station that was due for completion in 'mid 2013'. In fact it was May 2014 before this new geothermal station was finally commissioned. So the project didn't quite go to plan. But Contact management would know all about expected cashflows and make adjustments accordingly. So I think the June 30th 2014 balance sheet position is a fair window into what balance sheet position that Contact management wanted to achieve.

The Contact Group position at FY2014 balance sheet date was as follows:

(Total Liabilities) / (Total Assets) = $2,601m / $6,183m = 42.1%

Meanwhile 'down the road' Mighty River Power (now Mercury) had their own geothermal power station under development. The Ngatimariki power station was completed in September 2013. There was no rights issue. But Mercury were given considerable freedom over previous years in the dividends they were required to pay to the government to make sure their capital position was optimized. The closest balance date to this was June 2013.

The Mercury Group position at FY2013 balance sheet date was as follows:

(Total Liabilities) / (Total Assets) = $2,620m / $5,802m = 45.1%

The two gearing figures are pretty close. Perhaps one could argue that the gearing at Contact should be slightly less due to the higher proportion of thermal generation assets in the portfolio that are 'lesser quality assets' to borrow against? Yet generally the similarity between the two companies is not something that requires much imagination to see.

SNOOPY

[Jantar]

Jantar, I wonder if you would clarify something on 'Wairakei' for me, if you can help!

'Wairakei' I think has two meanings in this context. Firstly there is the Wairakei 'power station'. Secondly there is the Wairakei 'steam field'. The Wairakei steam field actually powers three of Contact's power stations: Wairakei, Poihipi and Te Mihi. The newest of those. Te Mihi was commissioned principally because Contact has permission to take more steam from the Wairakei steam field then they were using. Te Mihi was a neat way to take up all of their consented steam. However the net gain was not expected to be 116MW. The trade off was that some of the steam that used to go into the old Wairakei power station was to be shuffled off to operate the new more efficient Te Mihi. However, once Te Mihi was commissioned, the capacity the original Wairakei power station apparently was not reduced.

Is it possible to run all three stations that feed on the Wairakei steam field (Wairakei, Poihipi and Te Mihi) together generating a combined 132MW +65MW + 166MW= 363MW? Or is the combined generating capacity of all three rather less than this?

TIA

SNOOPY
You are mainly correct. The original Wairakei geothermal station was commissioned in 1958 as a 200 MW power station, although it never generated much more than 190 MW after transformer losses etc were taken into consideration. The station had a design life of 25 years before refurbishment with a maximum life of 50 years. That time has now been well surpassed. Its steam was extracted from a large steam field to the west of the station.

Popihipi was originally built as a joint venture by t6he McLachlan family and MIghty river (now Mercury) and took its steam from the south western edge of the Wairakei field. Resource consent limitations meant that it could only generate a fraction of its design 55 MW output, and the station was sold to Contact, and renamed Poihipi, in the late 1990s. Contact then applied to combine the consents from Wairakei and Poihipi on the grounds that they were using a common steam source. By this time the output from Wairakei had declined to around 116 MW (from memory, so this figure may not be correct), and two new heat exchange generator sets were installed at Wairakei to bring its output back up to over 145 MW.

Te Mihi was constructed using steam from the far western edge of the Wairakei Steam field, and using a much more efficient plant design.

So, yes they do all take steam from the same field, but from different parts of it, and some steam can be diverted between Te Mihi and Poihipi as required. The limiting factor is the consented annual Mass Steam Take. Although in theory they can all operate at close to full load all the time, if they did so, then they would exceed their annual permitted steam take.

[Jantar]

Thanks for that. Although small in absolute terms, it seemed to me like a no brainier, when mentioned in the 2011 capital raising prospectus, that it would go ahead. It is part of the feeder system that ultimately ends up in the Clyde dam after all. Since the Hawea dam already exists, I woudl have thought there would be little extra incremental cost to sticking a turbine in there. Can you offer any insight as to why the project was put on ice? The full reason may be commercially sensitive, but let's just say that the quotes received were higher than the budget. A modified version is under investigation.




Thanks for that. I notice on the Contact website:

https://contact.co.nz/aboutus/our-story/our-powerstations

that Clyde is still listed as having a generation capacity of 432MW. If what you say is correct, it is very poor that the website has not been updated when Contact have had ten years to do so! There is possibly more hidden value here than I suspected! I do not know why the website hasn't been updated, although the team that manage PR are not the operations or trading teams.

It is sufficiently long ago now that I can relate a slightly embarrassing tale about how the 464 MW value was obtained. When the new resource consents were confirmed, the dispatcher on duty at Clyde got a gleam in his eye and said to his manager, "Right, lets see what these babies can do." It is like driving a high powered sports car on the Waikato expressway and being told there are no longer any speed limits.

The turbines at Clyde were opened to 100% and Roxburgh was backed off to maintain the same total output from the Clutha stations. Immediately the 4 machines at Clyde shot up to 476 MW, but as the extra water raised the tailrace level the output dropped over the next 30 minutes to 464 MW. It then stayed there consistently for the following 30 minutes, hence the Max output was tested at 464 MW continuously for 30 minutes.

4 weeks later the reconciliation team in Wellington rang Clyde to see if we knew of any reason for the HVDC charge to Transpower suddenly increasing by almost $2 million. :scared:. We did explain to Transpower that it was as a result of a test, so the charge did not stick. However as a result of that we did some further investigation into how the HVDC charge was applied, and ended up reducing the maximum output from Clyde to 395 MW. Generation above that figure meant that we were paying more for the HVDC charge than we were receiving for the energy. Meridian caught on and also reduced their maximum output at Benmore and Manapouri. 2 years ago Transpower began the process of moving away from a peak based charge towards a MWh charge, and that move allowed us to once again offer up to the station maximum. My annual bonus was severely at risk that year.




I notice on the Contact website link above, the capacity of Ohaaki has been omitted!

On page 23 of the international presentation dated April 2017,

https://contact.co.nz/-/media/contact/mediacentre/reports-and-results/financial-results-and-presentations/2017-international-roadshow-presentation.ashx?la=en&hash=8941B4C093A9837A589103BA6A53870CBBC16D06

the capacity of Ohaaki was listed as 50MW. That was a year ago, so has Ohaaki declined even further? Is three no drilling program that can hope to restore generation capacity to close to the 100MW design capacity?

SNOOPY No. The required reinjection has quenched the field and cooled the geothermal fluid. Output will continue to decline slowly over the life of the station.

[Snoopy]

Jantar kindly identified some errors in my first version of this table. Time to put in his corrections



Mercury Energy HydroStation Generation CapacityMercury NotesContact Energy HydroStation Generation Capacity


Aratiatia78MWUpgrade by FY2020


Atiamuri74MWClyde464MW

[/TR]

Waipapa51MWRoxburgh320MW

[/TR]

Ohakuri112MW


Whakamaru100MWUpgrade to 124MW by FY2020


Arapuni196MWReceived 12MW upgrade in FY2011


Maraetai 1 & 2352MW


Karapiro96MW


Total1059MWTotal784MW







Mercury Energy GeothermalStation Generation CapacityMercury NotesContact Energy GeothermalStation Generation CapacityContact Notes


Kawerau100MWOhaaki48MW


Mokai (25% owned)112MWTe Huaka28MWCompleted FY2010


Rotokawa34MWRefurbished FY2015Wairakei145MW

[/TR]

Nga Awa Purua (65% owned)138MWCompleted FY2010Poihipi65MW


Ngatimariki82MWCompleted FY2014Te Mihi166MWCompleted FY2014


Total466MWTotal452MW



The first purpose of this comparison is to show how similar the renewable generation of each company is.

The second purpose of this comparison is to come up with a 'quantitative factor' that shows how we can estimate any undeclared 'thin air capital' on the Contact balance sheet. Competitor Mercury are very forthcoming with their 'thin air capital', regularly upgrading the value of their generation assets on an annual basis. Contact do not follow this policy, but that doesn't mean that no thin air capital is accumulating at Contact. It just means they are not trumpeting it in the annual accounts. Sniffing out hidden value is this hound dog's specialty, so this is why I remain 'on the case'.

I was a bit disturbed by Jantar's opinion that there is no fix for Contact's Ohaaki. The required water re injection rate quenching the field looks to be a long term death sentence for Ohaaki, and no doubt would require an annual write down in the value of that station should Contact adopt the policy of revaluing their generation assets each year. There is also a 'field risk' with most of the rest of the Contact geothermal portfolio all plugged into the Wairakei field. It is still possible that long term wholesale price increases over the geothermal portfolio will cancel out any production deterioration at Ohaaki though. Given this, I would suggest that for 'valuation purposes' we should assume that it is only the South Island hydro assets that are accumulating thin air capital. But even then with climate change changing the snow melt in the South, there could be some long term valuation adjustments to be made as a result.

Clearly there is not as much 'thin air capital' being accumulated at Contact than is being accumulated at Mercury. Also. I don't believe it is prudent that in a market with electricity wholesale prices largely flat, that we can assume any thin air capital accumulated in the past is a pointer to more of the same happening in the future. I do believe we investors can bank the thin air capital that has already been accumulated though, even if it hasn't been recorded in Contact's books.

Mercury has already calculated how much thin air capital they have accumulated over the last few years. I think it is a fair assumption that if we take this figure for any time period, then multiply it by a factor of:

784/1059 = 0.74

Or if you consider that the Mercury Geothermal power stations have increased in value over time, unlike their Contact counterparts, the multiplication factor might be:

784/(1059+466) = 0.51

One of those fractions will allow us to make an approximation of how much thin air capital has been accumulated by Contact over the same period. Once we know that figure, we can work out what size new power station that Contact can build, without going back to shareholders for more capital.

SNOOPY

[Snoopy]

Mercury has already calculated how much thin air capital they have accumulated over the last few years. I think it is a fair assumption that if we take this figure for any time period, then multiply it by a factor of:

784/1059 = 0.74

Or if you consider that the Mercury Geothermal power stations have increased in value over time, unlike their Contact counterparts, teh multiplication factor might be:

784/(1059+466) = 0.51

One of those fractions will allow us to make an approximation of how much thin air capital has been accumulated by Contact over the same period. Once we know that figure, we can work out what size new power station that Contact can build, without going back to shareholders for more capital.


My post on the Mercury thread, post 1076, gives the background information required for this calculation. Sadly with the balance sheet of Contact 'optimised' at the FY2014 balance date, we probably should only consider the thin air capital created over FY2015, FY2016 and FY2017 when assessing how much hidden value has accumulated within Contact's Generation Portfolio. For comparative purposes, I list the relevant Mercury figures, grabbed from Mercury posts 1003 and 1076, below:



Mercury EnergyTotal Revaluation ($m)Pre Tax Revaluation ($m)


FY2015356497


FY2016100137


FY20173852


Total494686



Observant readers will note that in the case of Mercury I subsequently took off all the special dividends paid. This is because I judged the Mercury special dividends were being paid to optimise the capital structure of Mercury. Contact shareholders will remember that they were paid a special dividend of 50cps just before Origin Energy quit its Contact stake. However, that payment was made for quite different reasons, to utilise imputation credits that would otherwise be lost. Since the Contact special dividend was not a capital structure optimization exercise, I propose to make no capital optimisation adjustment for that!

Using the scaling factor I derived in post 1514, we can now work out the 'thin air capital' that should now be 'off the books' at Contact Energy:

$494m x 0.74 = $366m

If we assume 45% gearing then Contact could borrow 0.45 x $366m = $165m against that sum.

This means the the money available to construct a new power station, using Contact's off balance sheet funds, is:

$165m + $366m = $531m

SNOOPY

[horus1]

These revaluations are based on the fact that prices increase as does the cost of new generation. With new tech ,solar and batteries that is no longer the case and it is becoming cheaper to put in your own solar than pay the price of grod power ,hence the valuations will stop. That is why the electricity industry hates solar and is trying to put customers of it.

[Snoopy]

These revaluations are based on the fact that prices increase as does the cost of new generation. With new tech ,solar and batteries that is no longer the case and it is becoming cheaper to put in your own solar than pay the price of grid power ,hence the valuations will stop.


I agree what you say is a possibility Horus. That is why I am only using past valuation increases in this exercise. I think it would be unwise, from an investor's perspective, to assume that these past power station revaluations will continue at anything like the past pace into the future.

SNOOPY

[fish]

I agree what you say is a possibility Horus. That is why I am only using past valuation increases in this exercise. I think it would be unwise, from an investor's perspective, to assume that these past power station revaluations will continue at anything like the past pace into the future.

SNOOPY

Nobody Knows but I believe population growth will lead to increased demand.
Solar doesnt work every day and night summer and winter and I cannot see it making a big change-it will be gradual and slow.
Thermal will eventually go-maybe the odd peaker will stay.
Geothermal and hydro will always be our main source

[percy]

Electric vehicles will not run on fresh air.
They may need electricity.
So perhaps the projected numbers of electric vehicles,may help us work out future power demands.?
I would expect 1 million electric vehicles plugged into the grid overnight could lead to power black outs.
I would also expect an electric bus/train would require a lot more power than a small Toyota.
I am noticing a growing number of battery bikes on the roads too.

[LAC]

We just need a large business to start selling these electric cars, offer special type of insurances as well as finance the loans, electric cars do cost a little more than the gas guzzlers. ;)

[BlackPeter]

We just need a large business to start selling these electric cars, offer special type of insurances as well as finance the loans, electric cars do cost a little more than the gas guzzlers. ;)

Actually - electric cars are much cheaper to produce and to maintain (if produced in comparable volumes). It is just that at the moment the consumers value them more and are happy to pay more for them ;). Expect price of electric cars to drop dramatically as soon as they become staple transport ...

[Snoopy]

Electric vehicles will not run on fresh air.
They may need electricity.
So perhaps the projected numbers of electric vehicles,may help us work out future power demands.?
I would expect 1 million electric vehicles plugged into the grid overnight could lead to power black outs.
I would also expect an electric bus/train would require a lot more power than a small Toyota.
I am noticing a growing number of battery bikes on the roads too.


Your long term vision of 1 million EVs may be about right Percy. But we have a l-o-n-g way to go to reach that point. The government's goal is to have 64,000 EVs on the road by the end of 2021. In September 2017 there were only 4541 EVs on the road! I did some work on the possible implications of EV uptake on the Mercury thread under the 'Fraser's Fantasy' sub heading (posts 1004, 1005, 1016). I worked out that by 2021, Mercury might expect a $2.256m jump in profit by 2021 as a result. Worth having but not game changing. Contact haven't been so active in promoting EVs, but no doubt they can put in place an incentive scheme similar to Mercury's very quickly if it makes market sense. So any prospective annual profit jump for Contact would be 'ballpark similar'.

I wouldn't expect any power black outs from plugging in EVs overnight. There is plenty of time to put new generation in place to avoid that. I would be more concerned about too many people plugging in their EVs during the day into quickchargers at supermarkets during the winter months. That could exasperate the peak load problem. I think I recall the new generating capacity required with the long term uptake of EVs is something like 20% of all current power use. So if most recharging was done off peak, it is well within the capacity of the current Transpower and local lines capacity to cope with 1 million EVs without substantial new investment in the existing electricity distribution infrastructure.

SNOOPY

[Snoopy]

The following information I have taken from FY2016. I have chosen this as a representative year because:

1/ It is the first year in which the closure of Otahuhu was expected, so is more likely indicative of future station use patterns than previous years.
2/ The hydrological conditions appear more 'normal' than FY2017.



Contact Energy HydroStation Generation CapacityAnnual Energy Generation Capacity (B)Actual Energy Generated (A)Station Utilization (A)/(B)


Clyde464MW4234GWh2289GWh54.1%

[/TR]

Roxburgh320MW2920GWh1802GWh61.7%

[/TR]

Total4091GWh







Contact Energy GeothermalStation Generation CapacityAnnual Energy Generation Capacity (B)Actual Energy Generated (A)Station Utilization (A)/(B) Notes


Ohaaki48MW438GWh337GWh76.9%


Te Huaka28MW256GWh196GWh76.7%Completed FY2010


Wairakei145MW1323Wh1075GWh81.3%

[/TR]

Poihipi65MW593GWh407GWh68.6%


Te Mihi166MW1515GWh1282GWh84.6%Completed FY2014


Total3297GWh







Contact Energy Fossil FuelStation Generation CapacityAnnual Energy Generation Capacity (B)Actual Energy Generated (A)Station Utilization (A)/(B)


Stratford Peaker Gas Turbine210MW1916GWh506GWh26.4%


Stratford Combined Cycle377MW3440GWh334GWh9.7%


Te Rapa Gas Turbine44MW402GWh221GWh55.0%

[/TR]

Total1061GWh



Thus we have a representative grand total generation figure of:

3297GWh + 1061GWh + 4091GWh = 8449GWh

SNOOPY

[horus1]

The review announced last week is far reaching and regards electricity as an essential service not a product. That is a change of philosophy and has big implications . I do not know how it will affect those in the electricity industry..

[Snoopy]

Thus we have a representative grand total generation figure of:

3297GWh + 1061GWh + 4091GWh = 8449GWh


The budget for constructing Te Mihi (166MW) back in FY2013 was $623m (refer to my post 617).



Using the scaling factor I derived in post 1514, we can now work out the 'thin air capital' that should now be 'off the books' at Contact Energy:

$494m x 0.74 = $366m

If we assume 45% gearing then Contact could borrow 0.45 x $366m = $165m against that sum.

This means the the money available to construct a new power station, using Contact's off balance sheet funds, is:

$165m + $366m = $531m


It doesn't look like Contact have accumulated enough thin air capital to construct another Te Mihi. But I reckon there might be enough in the kitty to build a 100MW geothermal station. Assuming that station had a utilisation rate of 85%, by how much would the power generating capacity of Contact Energy increase?

Energy Generated by New Station Over one year:

(100MW x 0.85) x 25 x 365 x (1/1000) = 776GWh

776GWh / 8449GWh = 9.2%

So this is the multiplication factor we need to increase the value of CEN shares by if we are to include in that the earnings value of the new station that 'could be built', without recourse to raising new capital from shareholders.


My normalised 'eps' figure for Contact Energy is a whole of business cycle figure. I have deemed FY2009 as the start of the representative electricity market from here on in.



Financial YearCEN Normalised eps


200927.0cps


201025.3cps


201122.4cps


201224.6cps


201327.5cps


201427.1cps


201522.0cps


201622.2cps


201718.7cps


Multi Year Average24.1cps



CEN Business Cycle share Price Average Value:

= 24.1c / ( 0.72 x 0.06) = $5.58 (based on a 6% gross desired earnings yield before tax). This is the 'fair value' as published in the adjacent table.



Note the above normalised earning valuation of the previous post does not make any allowance for off balance sheet 'thin air capital' that has been accumulated by Contact Energy. Making this adjustment I get a fair value for Contact Energy of:

$5.58 x 1.092 = $6.09

Given that Contact is trading well below that figure, it looks like an 'accumulate' at current market prices. Yet, ever the bargain hunter, I would be on the look out for 20% discount to fair value. That equates to $4.87. I say Contact would be a 'strong buy' should the current market volatility see the share price drop to that level.

SNOOPY

[Pavan Sharma]

Growing Electric Vehicles will be a major bonus for the power generators, and solar wont be enough to charge are especially if you are out all day and charge your car over night. Some solar panels don't store much power over the night and they suggests you try use more power during the day, which means in winter it'll probably just power your fridge for half the day.

[horus1]

If you buy and sell on the spot with Flick it doesnt matter . The spot at night is usually cheap.Do not use a generator retailer.

[RTM]

I know people are important...really important....and I know Bean Counters rate highly.......but I am somewhat surprised to see this as a price sensitive announcement for a power company.

"ADMIN: CEN: Contact announces departure of Chief Financial Officer
08:30a.m.
CEN
28/05/2018 08:30
ADMIN
PRICE SENSITIVE
REL: 0830 HRS Contact Energy Limited

ADMIN: CEN: Contact announces departure of Chief Financial Officer "

[Hectorplains]

I know people are important...really important....and I know Bean Counters rate highly.......but I am somewhat surprised to see this as a price sensitive announcement for a power company.

"ADMIN: CEN: Contact announces departure of Chief Financial Officer
08:30a.m.
CEN
28/05/2018 08:30
ADMIN
PRICE SENSITIVE
REL: 0830 HRS Contact Energy Limited

ADMIN: CEN: Contact announces departure of Chief Financial Officer "

Haha, it was tagged the same on the asx. I had the same WTF moment as you. Remember it's the exchange, not the company, that deems price sensitivity.

Last quarter report passed without comment here - numbers looked pretty good for Contact.

[Joshuatree]

Timely, thanks Gonzo. Our hydro stand us in good stead to help ameliorate future demand, usage, tech but with the Govt reviewing the sector, there has to be a little worry re the possibility of price caps/ intervention etc. And Winston did want to buy them back at one point. He made his point about them being majorly sold off in the first place(Contact ? being the exception).

[fish]

Timely, thanks Gonzo. Our hydro stand us in good stead to help ameliorate future demand, usage, tech but with the Govt reviewing the sector, there has to be a little worry re the possibility of price caps/ intervention etc. And Winston did want to buy them back at one point. He made his point about them being majorly sold off in the first place(Contact ? being the exception).

Has Gonzo removed the post?

It made me look at happenings in the UK-2 new nuclear power stations,new windfarms-all with government subsidies and guaranteed sales at inflated prices
Govt intervention more often than not will screw up a system thats working.
Even if it doesnt directly it scares the market.
I feel we will always need gas generation peakers.
Our population is growing but who would build new thermal generation with present govt policies?

[Gonzo]

article that was redacted was about power generation companys in the UK
https://www.thetimes.co.uk/article/the-future-for-neil-woodfords-funds-pqz77v8ts

[Hectorplains]

article that was redacted was about power generation companys in the UK
https://www.thetimes.co.uk/article/the-future-for-neil-woodfords-funds-pqz77v8ts


There is no mention of power companies in that link? The confusion grows!

[Hectorplains]

p5 from today's Trustpower Investor Day presentation - http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/TPW/320928/282883.pdf

This provides the counterargument to the gloom story around generators. It's the retail end that they foresee having problems, "Electricity segment remains highly competitive with consolidation andfailures likely" (see slide 11)

[ben28]

https://www.thetimes.co.uk/article/death-of-the-power-dinosaurs-jvzb5vfml
Believe this is the article

[RTM]

https://www.thetimes.co.uk/article/death-of-the-power-dinosaurs-jvzb5vfml
Believe this is the article

Yes, that’s the one, thanks Ben.
Worth having a look at the comments on the article as well.
In particular, Peter Prior”s.

[Snoopy]

https://www.thetimes.co.uk/article/death-of-the-power-dinosaurs-jvzb5vfml
Believe this is the article


Thanks Ben. That is an article about the power sector in Britain.

"Utilities, traditionally among the strongest beasts in the corporate world, are under attack from all angles as governments threaten price caps, new rivals undercut their prices, carbon taxes squeeze margins and renewable power technologies plunge in price."

In New Zealand new power generation is built with no government funding, because power is charged at the highest incremental rate needed to meet demand in a deregulated power market. If an energy power price cap was introduced, then the government would have to start installing new power generation equipment because it would be unprofitable for any private company to do it.

Carbon taxes have already caused the demise of Contact's Otahuhu gas fired station, now effectively replaced by the Te Mihi Geothermal generation station. Most of our generation in NZ is renewable anyway. Yes solar is getting cheaper. But solar generation is mismatched to NZs peak power requirements. So it needs battery technology to store the power. And batteries have a finite life and present their own end of life disposal challenges. By contrast a hydroelectric 'battery' (a dammed water resource) has a life of thousands if not millions of years.

Sure new retailers have come on the scene and cut prices. But those retailers without generation capacity have a tough job securing long term energy supplies from others. In summary, there is nothing in that first paragraph of the article that makes me want to subscribe to read the rest. It doesn't look like there is much lesson to be learned here that is applicable to the NZ market.

SNOOPY

[Snoopy]

Horus, if more localized power generation is the way to go in the future, like roofloads of solar panels, then what is to stop Contact 'renting' roofspace in Mangere, and opening up the "David Lange Memorial Power Station", a joint initiative with Pacifica people. Contact owns the panels and gets (most) of the benefit.

As I see it the main 'threat' from distributed generation and battery storage is actually to the lines companies, not the gentailers.


I was under the misapprehension that lines companies could not sell power. But after receiving an offer from my lines company to supply energy, I have been reeducated.

https://www.ea.govt.nz/dmsdocument/9541

It seems that under the Electricity Industry Act 2010, my lines company is allowed to sell me power after all. It is all a bit hush hush though, because the total amount of power they can sell per year appears to be limited to 75GWh per year or 75,000MWh /year. Yet there are quite a few lines companies throughout the country. So there is a bit more competition for the likes of Contact out there than I realised.

SNOOPY

[Snoopy]

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.


Announcement to the NZX today

--------

TRANSACT

31 July 2018

Sale of Contact’s LPG business Rockgas

Delivering on our strategy through portfolio optimisation

Contact has entered into an agreement to sell 100% of the shares in Rockgas Limited (Rockgas) to Gas Services NZ Midco Limited (GSNZ) an associate of First Gas Limited (First Gas), for a cash consideration of $260 million after an extensive competitive sales process.

<snip>

As part of the transaction, Contact will enter into an exclusive marketing alliance with GSNZ to be able to continue to offer LPG to mass market customers. In addition, Contact will enter into a services agreement to provide call centre and billing services for mass market LPG customers.

<snip>

The sale proceeds will strengthen our balance sheet and facilitate improved distributions to shareholders. Contact expects that post completion of the transaction the S&P net debt / EBITDAF ratio will fall comfortably below the target 2.8x.

<snip>

Contact entered the LPG market in 2007, through the purchase of Rockgas from Origin Energy (who held a majority shareholding in Contact) for $156 million, during the first year of operation, EBITDAF was $20m. The average annual EBITDAF for the period under ownership was $22 million, with a range of $13 million to $35 million.

During the period of ownership, Contact improved the integrity, reliability and costs of operation with operating costs down by $5 million which along with significant improvements to fuels procurement and consolidation of bulk distribution and shipping along with lower product costs saw FY18 earnings before interest, tax, depreciation and fair value adjustments in financial instruments (EBITDAF) of $32 million (unaudited).

About Gas Services New Zealand

GSNZ provides operational services for First Gas and other customers. GSNZ operates one of New Zealand’s largest gas networks. GSNZ and Contact are currently working to satisfy the conditions to complete the sale of the Ahuroa gas storage facility to GSNZ.

--------

Ah well, I won't have to bother to understand the Rockgas business any more! Who owns GSNZ? Anyone know?

SNOOPY

[traineeinvestor]

According to Wikipedia, First Gas was acquired by First State Funds in 2016: https://en.wikipedia.org/wiki/First_Gas

[Jaa]

First Gas is owned by a shell company called First Gas Holdings Ltd which itself is owned by another shell company, First Gas Midco Ltd which is owned by First Gas Topco Ltd (https://app.companiesoffice.govt.nz/companies/app/ui/pages/companies/5912668/shareholdings), owned by Australian and Canadian investment funds.

59.16% - Butterfield Trust (Cayman) Limited
- this seems to be owned by First State Investments (https://www.firststateinvestments.com/nz/en/institutional/real-assets/unlisted-infrastructure/unlisted-infrastructure-map.html) in an unlisted infrastructure fund.

24.14% - Colonial First State Managed Infrastructure Limited - Australia
13.90% - Caledon FGL Aggregator, L.P. - Canada
2.80% - Manitoba Public Insurance Corporation - Canada

See also this Energy Stream article (https://www.energystream.co.nz/news/2016/may/17/first-gas-eyes-up-opportunities), First Gas own Vector's old non Auckland gas assets, the Maui pipeline and other North Island gas assets. They are also buying the Ahuroa gas storage facility off Contact. At least $NZ1.75 billion in assets including the Contact purchases.

Would be nice if they were listed on the NZX.

[dreamcatcher]

Contact on fire today up 16c @ $5.81 ............................. $6 soon :t_up:

[fish]

Contact on fire today up 16c @ $5.81 ............................. $6 soon :t_up:

bought some at 5.59 on monday.
I dont believe its the only undervalued power company thats about to increase its profits

[Baa_Baa]

bought some at 5.59 on monday.
I dont believe its the only undervalued power company thats about to increase its profits

I worry about investing in the power companies, except for my TA skills I wouldn't invest.

This government was behind an enormous drop in share prices leading into the last term of the National government, and they're positioning for a 'review' which is code for potentially a buy back or screwing with the policies to nationalise power, that currently benefits so many shareholders.

Don't forget that a lot of normal people are being shafted by power prices and this stuff resonates with the current government. It won't be long before the energy market as we know it is attacked, and it won't be good for shareholders in power companies. Imho.

Hence my focus on TA, ride the good times, sell the reality.

[troyvdh]

Dear baabaa...IMHO....a very insightful and accurate post....thankyou
Disclosure ...4k CEN...I just love the dam etc...cheers

[Snoopy]

Don't forget that a lot of normal people are being shafted by power prices and this stuff resonates with the current government. It won't be long before the energy market as we know it is attacked, and it won't be good for shareholders in power companies. Imho.


The government has changed tack and decided to subsidise power over the winter for the oldies. The alternative regulation of power companies route was just too impractical.

SNOOPY

[dreamcatcher]

Nice price movements recently & one of my biggest div holdings

Seems to be no interest in Contact

[Timesurfer]

Mercury tried to poach me from Contact this morning. Waiting to hear back if Contact will match the deal. Be a shame if they don’t - I like Contact.

[Sideshow Bob]

Looks like a positive half year.

https://www.nzx.com/announcements/330371

[RTM]

Looks like a positive half year.

https://www.nzx.com/announcements/330371

Yes...sounds really good. ~5% of my portfolio so looking forward to the dividend.

[iceman]

Yes a very good result from CEN. Savings plan already delivering significant operational savings and the flexible and renewable generation really are delivering the goods in a difficult year/period like we've had. All leading to a large increase in the divie. A great start to the results season for my portfolio.

[iceman]

Has anyone seen the customer number in the results announcement ? I can not find it. I see comments about further losses in customers but that the numbers have stabilised over the last 3 months, but no more detail.

[freddagg]

Has anyone seen the customer number in the results announcement ? I can not find it. I see comments about further losses in customers but that the numbers have stabilised over the last 3 months, but no more detail.

I can not find it either. I assume they do not want us to know.

[Beagle]

Has anyone seen the customer number in the results announcement ? I can not find it. I see comments about further losses in customers but that the numbers have stabilised over the last 3 months, but no more detail.

I note their new dividend policy of 100% of free cash flow after capex for stay in business requirements. Key question for those who are in this stock. Is the 39 cps divvy this year sustainable going forward or is this an unusual year caused by very high wholesale prices and / or unusual hydrology ? Not often the Beagle is all ears but he his so please all of you, fire away with your thoughts.

[Hectorplains]

I can not find it either. I assume they do not want us to know.

No conspiracy - is in the monthly ops report.

[iceman]

I note their new dividend policy of 100% of free cash flow after capex for stay in business requirements. Key question for those who are in this stock. Is the 39 cps divvy this year sustainable going forward or is this an unusual year caused by very high wholesale prices and / or unusual hydrology ? Not often the Beagle is all ears but he his so please all of you, fire away with your thoughts.

Craig's believes it is sustainable, at least for FY20. Very hard to say as we rely on Mother Nature a lot, but I'm optimistic with the capex staying low for now and opex being reigned in, we have a decent chance of good steady yield in the next few years.
Discl: Topped up more this morning

[freddagg]

No conspiracy - is in the monthly ops report.

Thanks for that.

[Beagle]

Craig's believes it is sustainable, at least for FY20. Very hard to say as we rely on Mother Nature a lot, but I'm optimistic with the capex staying low for now and opex being reigned in, we have a decent chance of good steady yield in the next few years.
Discl: Topped up more this morning

Thanks mate. Had a quick skim of the analyst presentation. Looks pretty good to me. Good solid result and outlook and as you suggest forward capex is modest and cost control is good. Change in divvy policy to drive a re-rating ? Lots of people use these companies as bond proxies apparently.
Divvy going up and interest rates going down. Hmmm Gross yield inclusive of about 2/3rd's imputation credits looks like 7.5% to me. Not too shabby.

[RTM]

I bought mine in '14 and '15, two lots in each year. 595, 638, 501 and finally 456. The gain on my capital has been modest, although we must remember that they did return 50c of capital at one stage (Mid 2015)

I'm not sure I would be chasing the prices up at current levels. Although, yes, the dividend is attractive.

[Hectorplains]

Thanks for that.

Apologies, last ops out today. No customer numbers anymore.

[bull....]

big share sale this morning

[iceman]

big share sale this morning

Someone seems to have bought an equally big parcel !!

[frostyboy]

3% of script sold pre-open. It was most likely ACC, see top 20 shareholders below.


http://iforce.co.nz/i/3ryotaai.nr3.png (http://www.iforce.co.nz/View.aspx?i=3ryotaai.nr3.png)


Whats ACC track record of selling?

[bull....]

3% of script sold pre-open. It was most likely ACC, see top 20 shareholders below.


http://iforce.co.nz/i/3ryotaai.nr3.png (http://www.iforce.co.nz/View.aspx?i=3ryotaai.nr3.png)


Whats ACC track record of selling?

could have been a buddled block? as well

[frostyboy]

Considering the timing being close to dividend record date - ACC I reckon

I think: ACC don't pay tax, so imputation credits don't have any value to them. A dividend is record is 20 March with imputation credits

[dreamcatcher]

Excellent div holder for me for many years and today's SP reduction good opportunity for 16c divvy hounds before record date

[dreamcatcher]

GS Target Price $6.40 ..............

[iceman]

GS Target Price $6.40 ..............

Suuuussssssh. Haven't finished accumulating

[dreamcatcher]

Suuuussssssh. Haven't finished accumulating

Should have been doing that 2 months ago when CEN was screaming at you.............:p

[iceman]

Should have been doing that 2 months ago when CEN was screaming at you.............:p

Have been doing it for the last 4 months but not finished if SP stays at current level.

[macduffy]

Suuuussssssh. Haven't finished accumulating

Beware of accumulators! They're often about to turn into distributors.

;)

[dreamcatcher]

Looks like CEN in catch up mode to other Gentailers after recent huge orders ........

[bull....]

Looks like CEN in catch up mode to other Gentailers after recent huge orders ........

cen on fire , as are all gentailers. people locking in there divs because low rates and even lower rates for yrs to come

[dreamcatcher]

Over 1m already gone today great dividend payer in these low interest future and looks to be heading with a 7 in front :p

[bull....]

just about to crack $7

[dreamcatcher]

just about to crack $7

ONLY $7 some ways to go then ........... Oct 2007 was over $9

[Snoopy]

ONLY $7 some ways to go then ........... Oct 2007 was over $9


The above is true, but there is more to the story.

At the end of the financial year in which the $9 peak was reached (FY2018, ending 30th June 2018), there were 576.633m shares on issue. Over the next few years the number of shares on issue ballooned considerably. This was a result of a substantial cash issue, associated with the building of the Te Mihi geothermal power station and the operation of a dividend reinvestment plan. This saw the number of shares on issue balloon out to a peak of 733,359m at EOFY2015, before coming back a bit in recent years, Te Mihi ended up being a replacement for the Otahuhu gas powered station. So at the end of this process we had a company that was substantially unchanged in size, with profits to be shared across a lot more shares that are now on issue.

At EOFY2018 there were 716.287m shares on issue. This is an increase since $9 share price days of:

716.287 / 576.633 = 1.24, or a 24% rise

This means the equivalent share price to $9 from all those years ago is now:

$9 / 1,24 = $7.26

Take off the 50c capital return from 2015 and the all time high equivalent price drops to:

$7.26 - $0,50 = $6.76

So you may not have too long to wait before Contact touches its all time high. I would say we are there right now.

SNOOPY

[dreamcatcher]

Not a client of Craigs but understand they recently upgraded TP to $7.87 .... comments offers the most value in NZ electricity sector at present.

[Snoopy]

What does Contact's new dividend policy really mean in dollar terms? To answer that question I have overlaid the new dividend policy on the actual results over the last nine years.



FY2009FY2010FY2011FY2012FY2013FY2014FY2015FY2016FY 2017


Cashflows from Operating Activities$425m$368m$379m$440m$469m$446m$490m$556m $502m


less Stay in Business CAPEX($103m)($76m)($180m)($98m)($116m)($46m)($63m) ($87m)($75m)


less Net Interest Costs($63m)($56m)($62m)($72m)($66m)($77m)($98m)($1 01m)
($92m)


equals Operating Free Cashflow$259m$236m$137m$270m$287m$323m$329m$368m$3 35m


Operating Free Cashflow x 0.8$207m$189m$110m$216m$230m$258m$263m$250m$228m


Dividend per Share (based on 715m shares on issue)29cps26cps15cps30cps32cps36cps37cps35cps32cp s



Those calculated dividends are rather higher than what was actually paid out in the past, with one exception: FY2011. Why was the operating cashflow over FY2011 anomalously low? In that year Contact built both the Stratford Peaker station, and commissioned the Ahuroa gas storage site. Both of these additions were not to add to the normal portfolio of generation assets. They were to enable the existing generation assets to be utilized more effectively. It looks like Contact may have classified any associated expenditure as 'stay in business' Capex, because of this.

I intend to use the above table as 'input information' into my 'capitalised dividend' valuation model, which is one window as to what Contact Energy shares might be worth today.

Another point of note is that I am assuming exactly 715m shares were on issue at the end of each year over the last nine years. In fact the number of shares issued varied with share issues and share buybacks. However the purpose of the table is not an historical retrospective. The purpose of the table is to answer the question:

"What would happen if we imposed the the weather events and demand from the last nine years over the current capital structure. Effectively we are modelling an array of nine possible demand and generation variability events over today's Contact Energy, to see what kind of dividend variability going forwards we might expect.

One more point to notice is the very last figure in the bottom RH corner of the table. That figure - 32cps - happens to be exactly the targeted dividend figure that Contact is looking to achieve for FY2018 assuming debt has been brought down to an acceptable level. By implication, debt was not at an acceptable level at the end of FY2017. But if the debt had been brought down, that means we might have expected that level of dividend from the year just gone, had today's dividend policy applied. The fact that the retrospectively calculated dividend for FY2017 aligns with the forecast dividend of FY2108 gives me confidence in the dividend numbers rolling out from this modelling.



Time to update Contact's restated FY2018 dividend policy, to pay out 100% of free cashflow, from an FY2018 ten year perspective.



FY2009FY2010FY2011FY2012FY2013FY2014FY2015FY2016FY 2017FY2018


Cashflows from Operating Activities$425m$368m$379m$440m$469m$446m$490m$556m $508m$457m


less Stay in Business CAPEX($103m)($76m)($180m)($98m)($116m)($46m)($63m) ($87m)
($116m)($78m)


less Net Interest Costs($63m)($56m)($62m)($72m)($66m)($77m)($98m)($1 01m)($92m)
($84m)


equals Operating Free Cashflow$259m$236m$137m$270m$287m$323m$329m$368m
$299m$295m


Operating Free Cashflow x 1.0$259m$236m$137m$270m$287m$323m$329m$368m$299m$2 95m


Dividend per Share (based on 716m shares on issue)36cps33cps19cps38cps40cps45cps46cps51cps42cp s41cps



Those calculated dividends are rather higher than what was actually paid out in the past, with one exception: FY2011. Why was the operating cashflow over FY2011 anomalously low? In that year Contact built both the Stratford Peaker station, and commissioned the Ahuroa gas storage site. Both of these additions were not to add to the normal portfolio of generation assets. They were to enable the existing generation assets to be utilized more effectively. It looks like Contact may have classified any associated expenditure as 'stay in business' Capex, because of this.

Annoyingly between FY2017 and FY2018, the definition of 'Stay In Business' (SIB) Capital Expenditure seems to have changed slightly.

Over FY2017 there were three classes of CAPEX;
'Generation TTC', 'Customer and Corporate' and 'Generation Plant Maintenance and Continuous Improvement

Here TCC stands for the 'Taranaki Combined Cycle' Plant at Stratford. Contact had a plan for a now $50m do-over, with a revised start date in November 2017. Despite the later than anticipated on the ground start, the expenditure for this was budgeted for over FY2016, FY2017 and FY2018. The Stratford generator has undergone its fifth big refurbishment and that will see it through to 2022. Every 25,000 operating hours the turbine needs new blades. The TCC Station tyoically generates power for three to five months a year during the months of peak demand.

Over FY2018 there were only two classes of CAPEX;
''Customer and Corporate' and 'Generation Plant Maintenance and Continuous Improvement.

The forecast total CAPEX for FY2018 from the Annual Result Presentation in FY2017 does not appear to have varied from the actual CAPEX for FY2018 This suggests that the 'TCC refurbishments' have now been combined with the formerly separate 'Stay in Business' (SIB) category of capital expenditure. Oddly in another exposition of detail, CEN now make a distinction between 'accounting capex' and 'Cash Spend SIB capex.' I cannot explain this. But the result is the 'cash SIB capex' for FY2018 is now greater than the 'Total Capex'' for FY2018! (Refer to AGM Presentation 2018 p28 and AGM Presentation 2017 p26).

I intend to use the above table as 'input information' into my 'capitalised dividend' valuation model, which is one window as to what Contact Energy shares might be worth today.

Another point of note is that I am assuming exactly 716m shares were on issue at the end of each year over the last ten years. In fact the number of shares issued varied with share issues and share buybacks. However the purpose of the table is not an historical retrospective. The purpose of the table is to answer the question:

"What would happen if we imposed the weather events and demand from the last ten years over the current dividend policy. Effectively we are modelling an array of ten possible demand and generation variability events over today's Contact Energy, to see what kind of dividend variability going forwards we might expect.


SNOOPY

[Snoopy]

Annoyingly between FY2017 and FY2018, the definition of 'Stay In Business' (SIB) Capital Expenditure seems to have changed slightly.

Over FY2017 there were three classes of CAPEX;
'Generation TTC', 'Customer and Corporate' and 'Generation Plant Maintenance and Continuous Improvement

Over FY2018 there were only two classes of CAPEX;
''Customer and Corporate' and 'Generation Plant Maintenance and Continuous Improvement.

The forecast total CAPEX for FY2018 from the Annual Result Presentation in FY2017 does not appear to have varied from the actual CAPEX for FY2018 This suggests that the 'TCC refurbishments' have now been combined with the formerly separate 'Stay in Business' (SIB) category of capital expenditure. Oddly in another exposition of detail, CEN now make a distinction between 'accounting capex' and 'Cash Spend SIB capex.' I cannot explain this. But the result is the 'cash SIB capex' for FY2018 is now greater than the 'Total Capex'' for FY2018! (Refer to AGM Presentation 2018 p28 and AGM Presentation 2017 p26).


The above is an issue I have documented on the changing treatment of the Taranaki Combined Cycle power station at Stratford in year to year accounts.

There will be other issues regarding actual changes in the asset portfolio going forwards. Negotiations were well advanced (subsequently concluded) on the sale by Contact of the 'Rockgas' retail LPG supply business and the 'Ahuroa' gas storage facility. This raises the question: Should I try to 'back out' the associated free cashflows of both of these business units in my 10 year operating cashflow picture above? The rationale for doing this is that if I am using my 'free cashflow' table that I have generated above as a forecasting tool for future dividends, would it not be sensible to take out the cashflow from business units that I know will not be there in the future?

The problem I have with making such adjustments is not just technical. I have to consider that throughout history, businesses are managed as a current going concern. For example in the case of 'Rockgas'. 'Rockgas' has been post FY2018 balance date bought by 'Gas Services NZ' for $260m. Total 'Revenue and Other Income' for 'Rockgas' over FY2018 was $123m and EBITDAF was $32m. I could therefore 'fix' my cashflow analysis by backing out $32m of EBITDAF from the top line. Yet the sale of 'Rockgas' has allow debt to be repaid. So I presumably should also back out any associated interest cost savings from the cost line. Yet such a debt adjustment retrospectively assumes that Contact ring fenced a proportion of their debt to directly fund 'Rockgas'. That may or may not be true and this is where making such 'clever' adjustments becomes murky in practice. Making this adjustment, I would be guessing how management might have behaved in the past had their portfolio of assets been a little different.

My current thinking, which may be wrong, is that I should not make any such adjustments in this instance. That doesn't mean I don't have concerns. It just means that I am not sure the 'cure' of making such adjustments will be better than the 'disease' of not doing so.

The situation becomes even more complicated with the sale of the 'Ahuroa Gas Facility' to 'GSNZ SP1 Limited'. We know that this facility was 'on the books' valued at $185m and we know that Contact received $200m for it. What we do not know is what profits have been lost, or will be lost, by Contact in selling this facility. Contact will still have the use of 'Ahuroa' going forwards and will have to pay for the privilege. But how much will they be paying? As shareholders we have no idea. If we use the same earnings multiple as the Rockgas sale (a highly dubious assumption IMO ) then we get an averaged annual EBITDAF figure of $25m. But the use of the facility will be dictated by when Contacts's 'take or pay' gas purchase obligations are mismatched to their annual use requirements. Or more simply, how often the TCC Power Station is required run. Long term, I can't see how that can be forecast. And it looks to be extremely difficult to 'retrospectively adjust' in my modelling. We also need to bear in mind that 'other customers' (in real terms I think that means Genesis Energy, maybe Todd Energy?) may also use 'Ahuroa' going forwards. So the $200m price paid for Ahuroa does not only reflect profits that may be gained from Contact in the future.

I wonder if anyone else on this forum has concocted such a long winded way of saying they are doing nothing?

SNOOPY

[BlackPeter]

The above is an issue I have documented on the changing treatment of the Taranaki Combined Cycle power station at Stratford in year to year accounts.

There will be other issues regarding actual changes in the asset portfolio going forwards. Negotiations were well advanced (subsequently concluded) on the sale by Contact of the 'Rockgas' retail LPG supply business and the 'Ahuroa' gas storage facility. This raises the question: Should I try to 'back out' the associated free cashflows of both of these business units in my 10 year operating cashflow picture above? The rationale for doing this is that if I am using my 'free cashflow' table that I have generated above as a forecasting tool for future dividends, would it not be sensible to take out the cashflow from business units that I know will not be there in the future?

I guess it depends on whether you want to draw up a very detailed (and normally wrong) financial design - or the big picture. Obviously - if you take the cash flow for these business units out, than you must as well predict what they do with the money the get (or got) for them. Better polish your crystal ball ... ;);

[Snoopy]

Below I present my corrected earnings picture for the last nine years. You will note that:

1/ I have deleted the FY2015 50cps special dividend from the record, because it will not be possible to repeat that into the future.
2/ The 'Scenario Dividend Per Share Column' represents a prediction of an ongoing dividend of 80% of free cash flow being paid into the foreseeable future.
3/ The (A) - (B) difference column, if negative, represents the amount of the projected dividend not covered by imputation credits. This is important, because a dividend paid without imputation credits is in accounting terms, equivalent to giving shareholders their own capital back (equal to the amount of the unimputed dividend) complete with a tax bill. This is generally bad for investors. It is necessary to make a negative adjustment to account for any expected tax to be paid on the unimputed dividend component.
4/ The capital component of the dividend is the portion of shareholder equity being returned to shareholders. This will need to be removed from the dividend return calculation. Because to pay it is to return to shareholders money on the balance sheet that they already have, so it isn't a shareholder benefit.
5/ The unimputed component tax bill column, represents the income tax charged on share capital that is expected to be paid by the shareholder. A 28% tax rate is assumed. Note that if the (A)-(B) differnce is positive there is no extra tax bill. That's because in such a year, the dividend is fully imputed.
6/ The final column represents the dividend per share adjusted for any extra tax obligation.



Scenario Basis Financial Yeareps (A)Scenario dps (B)Difference (A)-(B)Divie Capital Component (C)Unimputed Tax Bill (D)Difference (B)-(C)-(D)


200922.2c29.0c-6.8c6.8c1.9c20.3c


201021.4c26.0c-4.6c4.6c1.3c20.1c


201121.8c15.0c+6.8c0c0c15.0c


201224.7c30.0c-5.9c5.9c1.7c22.4c


201328.2c32.0c-3.8c3.8c1.1c27.1c


201427.8c36.0c-8.2c8.2c2.3c25.5c


201522.5c37.0c-14.5c14.5c4.1c18.4c


201622.2c35.0c-12.8c12.8c3.6c18.6c


201718.7c32.0c-13.3c13.3c3.7c15.0c


Total209.5c272.0c182.4c



The expected average dividend per year, net of tax is therefore: 182.4 / 9 = 20.3cps (net)

Using a tax rate of 28c this is equivalent to a gross income of: 20.3cps /(1-0.28) = 28.1c

If we assume that a business cycle investment 'gross return' of 6% is required, then this equates to a CEN share price of:

28.1/0.06 = $4.69

So $4.69 is therefore 'fair value'. Naturally this valuation assumes no gross disruption to the market, i.e. Tiwai Point remains a going concern

Readers should note that $4.69 represents 'business cycle neutral' fair value. We could argue that we are currently at the top of a low interest rate inspired valuation cycle. My rule of thumb would suggest a 'top of cycle' value some 20% higher than my calculated fair value.

$4.69 x 1.2 = $5.62

This isn't too far removed from the $5.54 Contact is trading at as I write this post. However, I would suggest that if Contact breaks out of this trading range (towards $6), that might be an appropriate time to look at lightening your shareholding.


Below I present my corrected earnings picture for the last ten years. You will note that:

1/ I have deleted the FY2015 50cps special dividend from the record, because it will not be possible to repeat that into the future.
2/ The 'Scenario Dividend Per Share Column' represents a prediction of an ongoing dividend of 100% of free cash flow being paid into the foreseeable future.
3/ The (A) - (B) difference column, if negative, represents the amount of the projected dividend not covered by imputation credits. This is important, because a dividend paid without imputation credits is in accounting terms, equivalent to giving shareholders their own capital back (equal to the amount of the unimputed dividend) complete with a tax bill. This is generally bad for investors. It is necessary to make a negative adjustment to account for any expected tax to be paid on the unimputed dividend component.
4/ The capital component of the dividend is the portion of shareholder equity being returned to shareholders. This will need to be removed from the dividend return calculation. Because to pay it is to return to shareholders money on the balance sheet that they already have, so it isn't a shareholder benefit.
5/ The unimputed component tax bill column, represents the income tax charged on share capital that is expected to be paid by the shareholder. A 28% tax rate is assumed. Note that if the (A)-(B) difference is positive there is no extra tax bill. That's because in such a year, the dividend is fully imputed.
6/ The final column represents the dividend per share adjusted for any extra tax obligation.



Scenario Basis Financial Yeareps (A)Scenario dps (B)Difference (A)-(B)Divie Capital Component (C)Unimputed Tax Bill (D)Difference (B)-(C)-(D)


200922.2c36.0c-13.8c13.8c3.9c18.3c


201021.4c33.0c-11.6c11.6c3.2c18.2c


201121.8c19.0c+2.8c0c0c19.0c


201224.7c38.0c-13.3c13.3c3.7c21.0c


201328.2c40.0c-11.8c11.8c3.3c24.9c


201427.8c45.0c-17.2c17.2c4.8c23.0c


201522.5c46.0c-23.5c23.5c6.6c15.9c


201622.2c51.0c-28.8c28.8c8.1c14.1c


201718.7c42.0c-23.3c23.3c6.5c12.2c


201818.3c41.0c-22.7c22.7c6.4c11.9c


Total227.8c391.0c178.5c



The expected average dividend per year, net of tax is therefore: 178.5 / 10 = 17.5cps (net)

Using a tax rate of 28c this is equivalent to a gross income of: 17.5cps /(1-0.28) = 24.3c

If we assume that a business cycle investment 'gross return' of 5.5% is required, then this equates to a CEN share price of:

24.3c /0.055 = $4.42

So $4.42 is therefore 'fair value'. Naturally this valuation assumes no gross disruption to the market, i.e. Tiwai Point remains a going concern

Readers should note that $4.42 represents 'business cycle neutral' fair value. We could argue that we are currently at the top of a low interest rate inspired valuation cycle. My rule of thumb would suggest a 'top of cycle' value some 20% higher than my calculated fair value.

$4.42 x 1.2 = $5.30

Contact Energy is trading at $6.79 as I write this post. This technique would suggest that Contact Energy is now significantly overvalued (28% above fair valuation). But does a capitalised dividend valuation give the full picture?

SNOOPY

[Snoopy]

My post on the Mercury thread, post 1076, gives the background information required for this calculation. Sadly with the balance sheet of Contact 'optimised' at the FY2014 balance date, we probably should only consider the thin air capital created over FY2015, FY2016 and FY2017 when assessing how much hidden value has accumulated within Contact's Generation Portfolio. For comparative purposes, I list the relevant Mercury figures, grabbed from Mercury posts 1003 and 1076, below:



Mercury EnergyTotal Revaluation ($m)Pre Tax Revaluation ($m)


FY2015356497


FY2016100137


FY20173852


Total494686



Observant readers will note that in the case of Mercury I subsequently took off all the special dividends paid. This is because I judged the Mercury special dividends were being paid to optimise the capital structure of Mercury. Contact shareholders will remember that they were paid a special dividend of 50cps just before Origin Energy quit its Contact stake. However, that payment was made for quite different reasons, to utilise imputation credits that would otherwise be lost. Since the Contact special dividend was not a capital structure optimization exercise, I propose to make no capital optimisation adjustment for that!

Using the scaling factor I derived in post 1514, we can now work out the 'thin air capital' that should now be 'off the books' at Contact Energy:

$494m x 0.74 = $366m

If we assume 45% gearing then Contact could borrow 0.45 x $366m = $165m against that sum.

This means the the money available to construct a new power station, using Contact's off balance sheet funds, is:

$165m + $366m = $531m



Why am I about to quote a whole lot of Mercury Energy information on the Contact Energy thread? A very good reason: Mercury chooses to recognise the changes in the valuations of their power stations each year whereas Contact Energy do not. This doesn't mean that the value of those Contact Energy hydro stations in particular isn't going up though. So if we truly want to know the underlying increase in Contact Energy assets that are hidden on the books, we need to glean information from a company that does do this, then transfer that information over.

My post on the Mercury thread, post 1076, gives the background information required for this calculation. Sadly with the balance sheet of Contact 'optimised' at the FY2014 balance date, we probably should only consider the thin air capital created over FY2015 to FY2018 (inclusive) when assessing how much hidden value has accumulated within Contact's Generation Portfolio. For comparative purposes, I list the relevant Mercury figures, grabbed from Mercury posts 1003 and 1076, below:



Mercury EnergyTotal Revaluation ($m)Pre Tax Revaluation ($m)


FY2015356497


FY2016100137


FY20173852


FY20184055


Total534741



Using the scaling factor I derived in post 1514 (this shows the relative size of Mercury's and Contact's generation portfolios), we can now work out the 'thin air capital' that should now be 'off the books' at Contact Energy:

$534m x 0.74 = $395m

If we assume 45% gearing (actual gearing at EOFY2018 is slightly higher than this), then Contact could borrow 0.45 x $395m = $178m against that sum.

This means the money available to construct a new power station, using Contact's off balance sheet funds, is:

$178m + $395m = $573m

SNOOPY

[Snoopy]

The following information I have taken from FY2016. I have chosen this as a representative year because:

1/ It is the first year in which the closure of Otahuhu was expected, so is more likely indicative of future station use patterns than previous years.
2/ The hydrological conditions appear more 'normal' than FY2017.

<snip>

Thus we have a representative grand total generation figure of:

3297GWh + 1061GWh + 4091GWh = 8449GWh



The budget for constructing Te Mihi (166MW) back in FY2013 was $623m (refer to my post 617).



It doesn't look like Contact have accumulated enough thin air capital to construct another Te Mihi. But I reckon there might be enough in the kitty to build a 100MW geothermal station. Assuming that station had a utilisation rate of 85%, by how much would the power generating capacity of Contact Energy increase?

Energy Generated by New Station Over one year:

(100MW x 0.85) x 25 x 365 x (1/1000) = 776GWh

776GWh / 8449GWh = 9.2%

So this is the multiplication factor we need to increase the value of CEN shares by if we are to include in that the earnings value of the new station that 'could be built', without recourse to raising new capital from shareholders.



Note the above normalised earning valuation of the previous post does not make any allowance for off balance sheet 'thin air capital' that has been accumulated by Contact Energy. Making this adjustment I get a fair value for Contact Energy of:

$5.58 x 1.092 = $6.09

Given that Contact is trading well below that figure, it looks like an 'accumulate' at current market prices. Yet, ever the bargain hunter, I would be on the look out for 20% discount to fair value. That equates to $4.87. I say Contact would be a 'strong buy' should the current market volatility see the share price drop to that level.


The following information I have taken from FY2016 (my post 1523). I have chosen this as a representative year because:

1/ It is the first year in which the closure of Otahuhu was expected, so is more likely indicative of future station use patterns than previous years.
2/ The hydrological conditions appear more 'normal' than FY2017 and FY2018 (being the second successive year of hydro inflows 10% below average).

<snip>

Thus we have a representative grand total generation figure of:

3297GWh + 1061GWh + 4091GWh = 8449GWh

The budget for constructing Te Mihi (166MW) back in FY2013 was $623m (refer to my post 617).

It doesn't look like Contact have accumulated enough thin air capital to construct another Te Mihi (refer to my post 1583). But I reckon there might be enough in the kitty to build a 150MW geothermal station. Assuming that station had a utilisation rate of 85%, by how much would the power generating capacity of Contact Energy increase?

Energy Generated by New Station Over one year:

(150MW x 0.85) x 24 x 365 x (1/1000) = 1117GWh

1117GWh / 8449GWh = 13.2%

So this is the multiplication factor we need to increase the value of CEN shares by if we are to include in that the earnings value of the new station that 'could be built', without recourse to raising new capital from shareholders.

Note the above capitalised earning valuation of post 1582 does not make any allowance for off balance sheet 'thin air capital' that has been accumulated by Contact Energy. Making this adjustment I get a fair value for Contact Energy of:

$5.30 x 1.132 = $6.00

Given that Contact is now trading well above that figure ($7.14 as I write this), it looks like an 'reduce' at current market prices. But my valuation does not include an effect that a more permanent change in discount rates might have on the valuation of the company's power stations. Today's cut in wholesale interest rates announced by the Reserve Bank. A 0.5% cut in discount rate could increase the value of Contact's power stations (Again using Mercury as a reference point) by $534m x 5.5/5 = $587m:

$587m x 0.74 = $434m

With 716m shares on issue, this could increase the underlying value of each Contact share by:

$434m/716m = 61c

That gives a new 'fair value' of: $6.00 + $0.61 = $6.61

For the bargain hunter, like me, I would be on the look out for 20% discount to my unadjusted for discount factor fair value. That equates to: $6.00 x 0.8 =$4.80. I say Contact would be a 'strong buy' should any market volatility see the share price drop to that level.

SNOOPY

[SilverBack]

I see today's big increase in CEN's SP as the consequence of lowering the OCR. CEN is a yield play as much as anything and lowering interest rates generally, naturally raises the SP.

[Beagle]

Good luck getting them for $4.94 Snoopy lol

[Snoopy]

Good luck getting them for $4.94 Snoopy lol


The last lot I bought I paid rather less than $4.94 Beagle. Admittedly that was a few years ago!

SNOOPY

[Beagle]

You're as cunning as a hungry Beagle :) Might as well bury that bone for years more, I think its going higher.

[dreamcatcher]

The last lot I bought I paid rather less than $4.94 Beagle. Admittedly that was a few years ago!

SNOOPY

I also bought around $4.60 but those pricess are well and truly gone now feel SP heading to $8 - $9 ..........

[Snoopy]

You obviously only pay tax you expect to use. They have obviously done the modeling and decided they needed to skip imputation for one dividend as that would result in paying too much tax. Why they didn't skip the dividend entirely is obviously for marketing purposes, especially since they announced a bond issue at the same time - they are effectively borrowing money to return capital to existing shareholders.




Change in divvy policy to drive a re-rating ? Lots of people use these companies as bond proxies apparently.
Divvy going up and interest rates going down. Hmmm Gross yield inclusive of about 2/3rd's imputation credits looks like 7.5% to me. Not too shabby.


I am concerned that Contact is inappropriately manipulating their imputation credit balance to produce a superficial gross yield that is attractive to investors, but that is in reality not sustainable. Manipulation of imputation credits is an easy game to play. All a company must do is to pay tax in advance to a rate of 28%, regardless of how much tax is actually due, then the subsequent dividend can be paid out as 'fully imputed'.

Contact Energy cleared out their imputation credits with a special dividend, paid in the second half of CY2015 (which was also the first half of business year 2016). That meant the first subsequent regular dividend paid in 1HY2016 of 15cps carried no imputation credits. This is the dividend that Harvey referred to above as a 'marketing exercise'. A dividend that is 'fully imputed' means that tax at the company tax rate of 28% has already been deducted before it appears in shareholders bank accounts. The imputation rates of all CEN dividends paid since, prior to the last full year reporting date, I have tabulated below:



Date
DividendCumulative Normalised Profit for Year
Base Witholding Tax Rate
Imputation Already PaidImputation Rate


1HY201615cps (NI)28%0%]0%


2HY2016
11cps (PI)22.2cps
7.63%20.37%]73%


1HY2017
15cps (PI)
14.41%13.59%]49%


2HY201711cps (PI)18.7cps7.63%20.37%]73%


1HY2018
15cps (FI)

0%
28%100%


2HY2018
13cps (FI)18.3cps
0%
28%100%



The interesting thing to compare is the 'cumulative normalised profit' and the 'cumulative dividends' paid each year. During FY2018, for example, the 'cumulative normalised profit' fell short of the 'cumulative dividends' paid that year by:

28.0cps - 18.3cps = 9.7cps

Yet somehow the dividends paid during that financial year were 'fully imputed'. This could have been caused by one off factors (because tax is paid on actual profits not normalised profits). I will have to investigate. But to the set and forget shareholder, it does give the impression that 28cps of the dividend could be thought of as a yardstick to measure what level of dividend might be payable, fully imputed, into the future. I would argue that the real yardstick is only 18.3cps: a massive difference.

SNOOPY

[Snoopy]

I am concerned that Contact is inappropriately manipulating their imputation credit balance to produce a superficial gross yield that is attractive to investors, but that is in reality not sustainable. Manipulation of imputation credits is an easy game to play. All a company must do is to pay tax in advance to a rate of 28%, regardless of how much tax is actually due, then the subsequent dividend can be paid out as 'fully imputed'.

The interesting thing to compare is the 'cumulative normalised profit' and the 'cumulative dividends' paid each year. During FY2018, for example, the 'cumulative normalised profit' fell short of the 'cumulative dividends' paid that year by:

28.0cps - 18.3cps = 9.7cps

Yet somehow the dividends paid during that financial year were 'fully imputed'. This could have been caused by one off factors (because tax is paid on actual profits not normalised profits). I will have to investigate. But to the set and forget shareholder, it does give the impression that 28cps of the dividend could be thought of as a yardstick to measure what level of dividend might be payable, fully imputed, into the future. I would argue that the real yardstick is only 18.3cps: a massive difference.




Declared Profit FY2018Normalised Profit FY2018


EBITDAF$481m$481m


less Depreciation & Amortisation($215m)($215m)


less Net Interest($84m)($84m)


equals Net Profit Before Tax$182m$182m


less Actual Tax Paid($40m)


less Tax @28%($51m)


add Change in fair value of financial instruments$3m


less Tax on Significant Items($1m)


equals Net Profit After Tax {A}$144m$131m


Shares on Issue EOFY {B}716m716m


Earnings Per Share {A}/{B}20.1cps18.3cps



It is interesting to see that neither scenarios' endings come anywhere near covering a 28cps fully imputed dividend. My conclusion is that there must have been a substantial prepaid tax balance prior to FY2018 to allow those dividends to be fully imputed. The 'fully imputed dividend' for FY2018 was nothing more than a charade.

SNOOPY

[Snoopy]

It is interesting to see that neither scenarios' endings come anywhere near covering a 28cps fully imputed dividend. My conclusion is that there must have been a substantial prepaid tax balance prior to FY2018 to allow those dividends to be fully imputed. The 'fully imputed dividend' for FY2018 was nothing more than a charade.


Contact do not publish their 'imputation credit balance' in the annual report. But we do know that it was 'emptied out' by the special 50c dividend paid just before Origin Energy sold out their majority shareholding early in FY2016. After that event, we should be able to trace the cumulative actual tax paid via the company's ensuing cashflow statements.

With our tax system there are 'provisional tax issues'. This means that the tax due relating to any activities in a particular year is not necessarily all paid in that particular year. And that means that my 'normalised tax calculation', based on paying all tax due to profit generated in any particular year at a 28% rate will be wrong. Yet tax eventually has to be paid. So over time these, cumulative errors of underpayment and overpayment should average out. Now what do we actually observe happened?



Financial YearActual Tax Paid / (Received)Normalised Tax Calculated


FY2016($1m)$62m


FY2017$37m$64m


FY2018$33m$51m


Total$69m$177m



It looks to me as though Contact, in 'cash terms' are paying far less tax than their underlying business profits require. Far from 'overpaying tax', to generate misleading imputation credits as I suspected, they appear to be underpaying tax! Contact aren't even paying enough tax to cover their declared net profits let alone extra tax to cover extra dividends paid out of 'operating cashflows' and not profits.

How can this be?

SNOOPY

[winner69]

Snoopy — there’s a fair chunk of deferred tax each year. Note E1 of last AR has a bit of explanation and the tax expense split between current and deferred


Contact’s deferred tax liability is calculated as the difference between the carrying value of assets and liabilities for financial reporting purposes and the values used for taxation purposes.

[Snoopy]

Snoopy — there’s a fair chunk of deferred tax each year. Note E1 of last AR has a bit of explanation and the tax expense split between current and deferred

Contact’s deferred tax liability is calculated as the difference between the carrying value of assets and liabilities for financial reporting purposes and the values used for taxation purposes.


Ah yes, I remember attending an adult class lecture by Alan Robb who told us about having one set of accounts for the shareholders and another set for the tax man.

Suppose I was a plumber who bought a new van for all my gear. Suddenly two years down the track I decided my career was 'going down the plughole' (sic) and instead I wanted to become a yoga teacher. Obviously I don't need a fully equipped plumbers van to enable me to sit cross legged on my own living room floor. So I decide to 'write my van off'. This will be the correct thing to do if I want clean accounts for my yoga business going forwards. Including big depreciation charges on a piece of equipment I no longer use will not produce a representative accounting picture on how successful my yoga teaching business is becoming. However the tax man will not allow me to just walk away from my van commitments. So in my accounts to the tax man I will still be depreciating that van, even though I no longer use it for work. This means my actual tax bill will be lower than it would be, compared to if I had just started my yoga business from scratch.

Nevertheless, this is Contact Energy and we are not talking about vans or yoga. Yet in what may be an analogous tax treatment (?), Contact Energy made a large $204m write off in FY2016 connected with the closure of the Otahuhu Gas Power station in South Auckland. If Contact's Otahuhu is still on the tax man's books, that means the actual profit declared by Contact Energy to the tax man is rather less than that declared to shareholders. And if the real accounting profit is less, that means the tax man's share of that profit, the income tax due, is also less. Might this kind of thing be behind the unusually low cash payments that Contact is presenting to the Inland Revenue?

SNOOPY

[777]

So snoopy what you are saying is a full set of audited accounts are total rubbish.

WAs it a full moon tonight?

[Snoopy]

So Snoopy what you are saying is a full set of audited accounts are total rubbish.


Let's go back a step and consider why the issue I am raising matters.

1/ On 30th September 2018 the CEN share price was $5.83 (market value).

2/ During that financial year CEN paid fully imputed dividends of 28c. If at that time you were consider a gross dividend yield of 6% appropriate, then the 'One Year Historical Capitalised Dividend valuation' of CEN was:

($0.15 + $0.13) / 0.06 x 0.72 = $6.48

3/ The FY2018 accounts do not show that enough tax was paid during FY2018 to fully impute the dividends paid. In fact only 18.3c of earnings during the year were 'tax paid', leaving 9.7c of earnings as 'unimputed'. This difference significantly alters the 'One Year Historical Capitalised Dividend Valuation' of CEN as follows:

($0.183) / 0.06 x 0.72 + ($0.097) / 0.06 = $4.24 + $1.62 = $5.86

There is a 62cps difference in valuation between methods 2/ and 3/. Comparing both valuations against the market value would suggest that, at the time, the market considered that valuation method 3/ (my preferred method of the two) was more accurate.

However, it now appears to me that Contact Energy was able to generate imputation credits without paying the underlying tax due. And this is something to do with having a 'deferred tax balance'. Yet deferred tax is listed on the CEN balance sheet as a liability: something that has not yet been paid. So how can a deferred tax balance create an imputation credit that can be paid out to shareholders? This is the bit I don't understand.

SNOOPY

[winner69]

Give your last paragraph a bit more thought Snoops ...think it through in simple steps

Imputation credits based on tax actually paid to ird in cash ....deferred tax is what?

[Snoopy]

Give your last paragraph a bit more thought Snoops ...think it through in simple steps

Imputation credits based on tax actually paid to ird in cash ....deferred tax is what?


I accept that if imputation credits have been paid out, then the tax on that income must have been paid. The IRD would not allow it to be any other way. So taking the hint from your first reply to my post that you deleted Winner: something to do with a difference in depreciation rates that the IRD allows and the company presents....

Let's suppose that Contact in the report they publish for shareholders is depreciating their assets more slowly than is allowed by IRD. This would mean that the net profit printed in our annual report is different to the net profit reported to IRD over the same period. But in order to satisfy the IRD, Contact would have to pay tax based on the accounts they submitted to the IRD. And if the depreciation reported to the IRD is greater, that means the net profit for Contact will be greater. That means the IRD will actually receive more tax from Contact, than Contact reports is payable as a 'tax expense' for the period in the annual report. Instead of this extra tax being recorded as a 'tax expense' it is instead transferred onto the balance sheet, as 'deferred tax liability'. This tax is 'deferred' not in the sense it hasn't been paid, but in the sense that it hasn't had to be classified as a tax expense yet. Am I getting close Winner?

SNOOPY

[Snoopy]

Snoopy — there’s a fair chunk of deferred tax each year. Note E1 of last AR has a bit of explanation and the tax expense split between current and deferred


To reprise what we know so far: Contact Energy cleared out their imputation credits with the payment of a special dividend early in FY2016. Winner has suggested that the excess of imputation credits paid out since over actual tax paid is due to the deferred tax on the books. So let's trace the creation of that extra deferred tax since those imputation credits were cleared out.



Financial Year
Deferred Tax Balance EOFY
Current Tax Expense / (Received)
Deferred Tax Expense / (Received)
Total Tax Expense
Normalised Tax Calculated


FY2016
$736m
$19m
($59m)

$62m


FY2017
$749m
$33m
$18m

$64m


FY2018
$751m
$36m
$5m

$51m


Total

$88m
($36m)
$52m
$177m



The result is that if we add the change in deferred tax to the current year tax 'created' since that bonus 50c special dividend, which cleared out the imputation credits, was paid then it still falls well short of the actual tax paid via the cashflow statements. And that in turn is well short of the normalised tax on normalised profits. What gives?

SNOOPY

[Snoopy]

Here is the bit of the announcement that confused me:

"As the company has accumulated a significant balance of imputation credits from capital raisings over recent years, the company has determined to return $367m (50cps) to shareholders through a fully imputed special dividend to be paid on 23rd June."

I thought imputation credits reflected tax already paid by the company on behalf of shareholders. How does raising new capital create imputation credits, when the new capital is not money earned by the business in operations? Can any accountants out there explain?




You dont receive IC from capital raising. Excess IC are generated when your taxable profit is greater than the amount of dividends distributed (gross simplification). My guess is their tax manager didn't review that press release and will now be the ridicule of the profession.


It is funny how your memory plays tricks on you. I had forgotten about the above Contact announcement bungle. But I also thought that Contact had extinguished their imputation credit account with that special dividend. In fact the announcement does not say that, notwithstanding the fact that the subsequent dividend carried no imputation credits. There could have been some imputation credits not paid out after all. But even if that was true, would they not have been extinguished by Origin Energy selling their controlling 50.1% shareholding?

SNOOPY

[stealthmaster]

gentailers increasing again because of fed decision? 2 potential rate cuts https://edition.cnn.com/2019/06/19/economy/federal-reserve-rate-decision/index.html

[stealthmaster]

big increases :O up to 7.730 before OCR rates decision tomorrow

[bull....]

big increases :O up to 7.730 before OCR rates decision tomorrow

cen and mel stand outs this mth

[iceman]

They are not ooutstanding for all customers however !! https://www.stuff.co.nz/business/opinion-analysis/113615702/contact-energy-is-impossible-to-reach

[BlackPeter]

They are not ooutstanding for all customers however !! https://www.stuff.co.nz/business/opinion-analysis/113615702/contact-energy-is-impossible-to-reach

No surprises here. According to the latest member survey of the consumer magazine do Contact and Genesis have the least happy customers of any electricity provider in New Zealand (both at 46% customer satisfaction - Powershop on the other end of the spectrum reaches 66% satisfied customers, Nova Energy 65%).

https://www.consumer.org.nz/articles/energy-providers

In a nutshell - go with one of the big providers and be unhappy - or go with one of the small providers and be happy ;);

To somewhat balance this statement ... I am Genesis customer for many years and never had problems related to the gentailer (but yes, I never needed their customer support). If we have power outages (we do, hey - this is NZ) is it anyway the network provider who has a quite mediocre service, but we can't choose them. I tried some years ago a stunt with Powershop - and learned after signing up (but before switching) that their their advertisements and claims are misleading at best. I changed back to my old provider before they made the switch.

[troyvdh]

This is nuts...check out 5 yr charts.

[Snoopy]

This is nuts...check out 5 yr charts.


From today's press release:

"Contact has secured 4.5PJ of gas for this winter and access to new Maui gas until the end of 2024 as the field is progressively invested in. Our perspective is that gas is getting more expensive and less reliable at a time when it’s facing increased competition from renewables. To maintain its share of energy production it should be doing the opposite. This unreliability has also impacted our ability to call on energy under a long-standing insurance product which has significantly devalued its future worth. On a more positive note the Ahuroa Gas Storage facility expansion is progressing well with completion expected in early 2020 and we understand there is a long term contract with another user imminent.

The increased price and reducing reliability of gas is accelerating the case for the long-term economic substitution of thermal plant with new baseload geothermal."

Those bold bits sound bad!

"After successfully lowering the cost of geothermal since our last build, we are taking the next step in developing the geothermal project we have consented at Tauhara by committing to drill a series of four appraisal wells. In gas equivalent terms Tauhara is a 20PJ per annum resource, and that’s just the currently consented portion. The drilling will lay the groundwork for a final investment decision for a new power station in early 2020. The results of the drilling will further define the extent of the reservoir and its characteristics and confirm our initial assessment that along with steam turbine technology cost improvements Tauhara is New Zealand’s lowest cost new generation build."

But a solution is at hand?

SNOOPY

[macduffy]

We shouldn't be surprised about the "increased price and reduced reliability of gas". Isn't this what current govt policy aims to achieve?

:rolleyes:

[stealthmaster]

ASB economists say the latest gloomy business confidence survey means the Reserve Bank will need to cut interest rates two more times this year- with a cut in August now "a done deal."
"With economic momentum continuing to slow, we now expect the RBNZ will cut the OCR twice more, in August and November, bringing the Official Cash Rate (OCR) to 1 per cent," ASB economist Jane Turner said.

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12245766&fbclid=IwAR3AuPeTOXaHLtj8_2meX400-2n1vbiWOgm3zIS9cHsp9ljw8wGfOPUy6Fo

Looking like 2 further rate cuts, expect to see continued rises in CEN, MEL, GNE, MCY, TPW

[Winston001]

Just a thought. I live in Central Otago and so far this year, the snowfall is light. Very light.

The primary base for Contact is hydro dams and right now I'm wondering if there will be a lean year. Shallow lakes and not much generation.

Any thoughts?

[whatsup]

Just a thought. I live in Central Otago and so far this year, the snowfall is light. Very light.

The primary base for Contact is hydro dams and right now I'm wondering if there will be a lean year. Shallow lakes and not much generation.

Any thoughts?

IMO this will ply havoc with the spot market later on this year.

[stealthmaster]

big increases today!

[Jantar]

Just a thought. I live in Central Otago and so far this year, the snowfall is light. Very light.

The primary base for Contact is hydro dams and right now I'm wondering if there will be a lean year. Shallow lakes and not much generation.

Any thoughts?
The snow pack is around 70% of normal for this time of year, but there are still 2 months left in the snow accumulation season.

Hydro is around a third of Contact's portfolio, Geothermal around a third and Thermal around a third. So a good mix overall.

[Beagle]

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/CEN/338910/305078.pdf

Very strong result and targeting the same 39 cps annual divvy payout next year.
Dividends are imputed to 65% so the maths looks like this, 28% corporate rate x 65% = effective imputation rate of 18.2%.
39 / 0.818 = 47.68 cps gross per annum. On $8.30 that gives a gross yield of 5.75% and presently trades cum the final 23 cps divvy.
On the theoretical ex divvy price of approx. $8.07, 47.68 cps gives a gross yield that appears to be sustainable of 5.94%.

Not too shabby at all for a safe gentailier.

http://www.sharechat.co.nz/article/9ede4491/first-cut-contact-energy-fy-operating-earnings-up-12.html

[iceman]

Only read the highlights so far but not much there not to like. Operating and capital expenditure down and now well under control and the all important operating free cashflow up to a cool $ 341 mill, up 13%. FY divie up 20%.
As you say Beagle, nothing wrong with these boring old Gentailers :)

[bull....]

good result , muted re action probably de to the spike in stock price last week. anyway see anz have reduced term deposit rates under 3%


ANZ leads the way with cuts to all its term deposit offers with most of the popular terms now well below 3%. The outlook is for more reductions and other banks following

https://www.interest.co.nz/personal-finance/101132/anz-leads-way-cuts-all-its-term-deposit-offers-most-popular-terms-now-well

[Jantar]

Only read the highlights so far but not much there not to like. ... Looks like the market doesn't like the result. The best result from CEN in years sees the SP drop 9 c so far. The way that it increased so rapidly over the previous week does suggest that there may have been sufficient insider trading to see that the result was fully built into the price prior to the announcement.

[iceman]

Looks like the market doesn't like the result. The best result from CEN in years sees the SP drop 9 c so far. The way that it increased so rapidly over the previous week does suggest that there may have been sufficient insider trading to see that the result was fully built into the price prior to the announcement.

Yes you can be forgiven for reading that into it Jantar. But we do nay care, just look forward to the juicy dividend and enjoy the large rise in SP in recent weeks. Happy holder

[fish]

Looks like the market doesn't like the result. The best result from CEN in years sees the SP drop 9 c so far. The way that it increased so rapidly over the previous week does suggest that there may have been sufficient insider trading to see that the result was fully built into the price prior to the announcement.

We will never know.I made the mistake of selling my contact earlier this year and sold off half my mercury when the sp appeared to be running ahead and i wanted to diversify more (oceania,Sum,windfarms,heartland).


It is the nature of people to help their friends and whispers must get out before the annual result .It would be fairer to shareholders if companies made more frequent announcements of progress.

[Snoopy]

Looks like the market doesn't like the result. The best result from CEN in years sees the SP drop 9 c so far. The way that it increased so rapidly over the previous week does suggest that there may have been sufficient insider trading to see that the result was fully built into the price prior to the announcement.


Like the 'insider trading' that has seen our CEN investment climb 35% since the beginning of the year you mean?

There are full time energy analysts out there that do little else other than pour over gentailer results. You really expected them to be 'caught out' on result announcement day, and the CEN share price to surge?



We will never know.I made the mistake of selling my contact earlier this year and sold off half my mercury when the sp appeared to be running ahead and i wanted to diversify more (oceania,Sum,windfarms,heartland).


What mistake? You think you could have diversified more by just holding on to all your power company shares?

There is a saying around the markets for those that borrow to buy in the expectation of a recovery that:

"The market can remain irrational longer than you can remain solvent."

The sellers regret equivalent of this is:

"The market can remain over exuberant longer than you can remain greedy."

Don't beat yourself up over this fish.



It is the nature of people to help their friends and whispers must get out before the annual result .It would be fairer to shareholders if companies made more frequent announcements of progress.


Contact do produce monthly operational reports. I am not aware of any public company reporting more frequently than that. Short of driving your campervan to within binocular sight of the Clyde dam and keeping a daily eye on Dunstan lake levels, I am not sure what more you could do.

SNOOPY

[fish]

Thanks snoopy for your wise words.
My mistake of course was in hindsight-I am happy that I made the right decision to reduce risk.
Youngest son-who has a margin lending account like me-needed money so rather than using bank of mum and dad I suggested he sold 1/2 of his contact-in the $7 dollar range .Still a good decision and he will learn to be happy to take gains just as I am

[bull....]

new highs , gentailers on fire. get your income why you can

[winner69]

They say carnage on the bourse early next week because of Trump

Never fear ...listed gentailers in NZX will be OK ..probably see continued increase in share price

We all love them

[RTM]

They say carnage on the bourse early next week because of Trump

Never fear ...listed gentailers in NZX will be OK ..probably see continued increase in share price

We all love them

We all live them all.
Contact closes at $9.05 ! Wow. I was underwater for ages with this one after buying on Craigs recommendation in 2014.
Averaged down a couple of times. And waited. Have been well rewarded with dividends and capital growth.
Now our 3rd biggest holding.

[iceman]

Up a cool 19% in the last 4 weeks plus a 23c divie. Nothing to be sneezed at :-)

[RTM]

August Operating Report
http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/CEN/340869/307573.pdf

"As at 9 September 2019, total Clutha scheme storage (including uncontrolled storage) was 24% of mean "

Anyone know what this means ? Anything at 24% of the mean sounds like quite a deviations to me. One of my bigger holdings.

[BlackPeter]

August Operating Report
http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/CEN/340869/307573.pdf

"As at 9 September 2019, total Clutha scheme storage (including uncontrolled storage) was 24% of mean "

Anyone know what this means ? Anything at 24% of the mean sounds like quite a deviations to me. One of my bigger holdings.

I'd say it sounds like insufficient rain in the Southland region ...

Lucky the other hydro stores are not that empty ...

[RTM]

I'd say it sounds like insufficient rain in the Southland region ...

Lucky the other hydro stores are not that empty ...

Yeah....that's what it felt like to me as well. But other figures in there....."Inflows into Contact’s Clutha catchment for August 2019 were 74% of mean (July 2019: 145%, June 2019: 104%, May 2019: 160%)"....made me wonder if I was reading it right ? Then I guess that's not great news for Contact.

[BlackPeter]

Yeah....that's what it felt like to me as well. But other figures in there....."Inflows into Contact’s Clutha catchment for August 2019 were 74% of mean (July 2019: 145%, June 2019: 104%, May 2019: 160%)"....made me wonder if I was reading it right ? Then I guess that's not great news for Contact.

... certainly not for the branch of their business generating power from the Clutha hydro system ;);

[Jantar]

August Operating Report
http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/CEN/340869/307573.pdf

"As at 9 September 2019, total Clutha scheme storage (including uncontrolled storage) was 24% of mean "

Anyone know what this means ? Anything at 24% of the mean sounds like quite a deviations to me. One of my bigger holdings.The Clutha receives most of its inflows in Spring and Summer, and very little over winter. It only has Hawea as a storage lake, so this is the only one that gets measured. This year Contact appear to have drained Lake Hawea lower than normal because of the reduced inflows in August/September, in anticipation of the snow melt arriving in October/November. Snow pack is not measured as part of the storage as it cannot be accurately measured, but the indications are that it has been a good snow year in the South Island.

The watch going forward would be that a La Nina pattern looks likely for the coming year, and that is normally lower rain for the Hydro catchments.

[RTM]

Thanks Jantar, Appreciated.

[penn]

I have been looking at the listed 'Gentailers' for a while and though the divs look tempting they did seem a bit overbought, are there any gurus here that can say why they all had a mini 'crash' today? CEN down 10%?

[jonu]

I have been looking at the listed 'Gentailers' for a while and though the divs look tempting they did seem a bit overbought, are there any gurus here that can say why they all had a mini 'crash' today? CEN down 10%?

Review into the viability of the aluminium smelter. Rio Tinto's 5 yearly rort. The last time they negotiated their power price I seem to remember them saying they were committing to another 25 years.

[penn]

Thanks - very unsettling for Southland.

[dabsman]

I have been looking at the listed 'Gentailers' for a while and though the divs look tempting they did seem a bit overbought, are there any gurus here that can say why they all had a mini 'crash' today? CEN down 10%?

Back to June/July prices - not exactly a smashing

[dreamcatcher]

GS (Aug) - "Since it was initiated at Buy on 3 Jun 2016, the stock is up 53% vs. NZX50 up 38%" TP $8.40

[RTM]

Back to June/July prices - not exactly a smashing

So far. Quite an overhang on the sector now.

[stealthmaster]

Aussie closed on 7.17 = 7.71 nzd, good time to
buy?

[cyclist]

Crikey. If there has ever been a lesson in the pitfalls of seeking yield at all costs, CEN particularly (and the entire sector) is presently giving us a fine one.

(Disc: Not holding. Haven't for a long time, so also missed out on all the fun)

[ananda77]

I have started to accumulate, first very small 1131 shares at 695. Now I just hang in there and keep waiting till the weaker hands have exhausted their selling...someone could argue, a bit too early as if anyone would know when is the right time to buy...But buying at 905, that's been Kamikaze...

[Beagle]

I think you're very brave catching this falling knife. Long time until March / April 2020 when Rio signals what they'll do with the smelter so that's one heck of a lot of uncertainty overhanging the utility sector until then. Could easily test its long term support level of $5.60 in the meantime.

[ananda77]

I think you're very brave catching this falling knife. Long time until March / April 2020 when Rio signals what they'll do with the smelter so that's one heck of a lot of uncertainty overhanging the utility sector until then. Could easily test its long term support level of $5.60 in the meantime.

560 would be a smash hit.Just for a sideline, if you keep your cash, you also loose to the tune of 1.7%...and some people wait forever for the bottom to arrive...and then they become so frustrated and buy at 905...

[couta1]

A lot of pain for folks that got caught up in the hyped up yield trap by buying these and MEL near or at the top, they were so overcooked you could smell the burning from miles away.

[iceman]

A lot of pain for folks that got caught up in the hyped up yield trap by buying these and MEL near or at the top, they were so overcooked you could smell the burning from miles away.

But for those that have kept the generators in their long term portfolio they remain great yield performers and I suspect they will continue doing so, regardless of Tiwai. Definitely will continue keeping them (CEN & GNE) in my yield part of the portfolio, albeit did halve the exposure some weeks ago.

[dreamcatcher]

But for those that have kept the generators in their long term portfolio they remain great yield performers and I suspect they will continue doing so, regardless of Tiwai. Definitely will continue keeping them (CEN & GNE) in my yield part of the portfolio, albeit did halve the exposure some weeks ago.
Totally agree, no intentions from me of any further selling MEL or CEN costs now less then a hotdog per share and has both been an excellent dividend hold.

[ananda77]

Totally agree, no intentions from me of any further selling MEL or CEN costs now less then a hotdog per share and has both been an excellent dividend hold.

I think its funny how people get swayed into wrong decision making by noise. The point is that the outcome of Tiwai is 50:50 (my take is, it will not close), but judging by the trading, it's almost a certainty that it will close, hence the selling. So people keep sitting on the sidelines waiting for the elusive magic bottom, forgetting that the noise getting closer to the bottom will become even more negative and resulting in more selling, while the winners just keep accumulating. Happens all the time and that's why most people keep selling into a bottom and keep buying into a top. NEWS, its all bull****!... designed to keep the lines between losers and winners clear. BTW, my profit on mcy: 69%, cen: 29%, tpw: 33%...now accumulating cen again started at 695.

[dreamcatcher]

... designed to keep the lines between losers and winners clear. BTW, my profit on mcy: 69%, cen: 29%, tpw: 33%...now accumulating cen again started at 695.
It all comes down to ones cost price where current sellers locking in profit. Others who have been here for years are already in PROFIT huge advantage. Recently sold 50% of MEL & 25% CEN sadly never picked the highs of either but now have free carry on one and a hot dog costing for other.

Personally think Tiwai won't close and would not offer RIO any discounts to stay.

[ananda77]

Close to 3m shares changed hands so far, price up 14 cents so far...dead cat bounce??..who cares

[dreamcatcher]

Close to 3m shares changed hands so far, price up 14 cents so far...dead cat bounce??..who cares

CEN in my buy zone MEL not..........

Hold CEN/MEL

[ananda77]

Close to 3m shares changed hands so far, price up 14 cents so far...dead cat bounce??..who cares

today, close to 4m shares changed hands, price up 22 cents...Ich denk mich laust der Affe - I think, a monkey is picking my lice (meaning here is: unbelievable surprise or not?)

[dreamcatcher]

today, close to 4m shares changed hands, price up 22 cents...Ich denk mich laust der Affe - I think, a monkey is picking my lice (meaning here is: unbelievable surprise or not?)

Futures and derivative 21st and 28th plus a favorable DOW - S&P500 but well done on your CEN accumulations

[Independent Observer AUNZ]

Very steady at that 7.20 mark at the moment. What are predictions for the interim dividend? I assume something around the 15c mark again? Or will the board be keen to drive a bounce on the shareprice and push up towards 20c?

[Rowdy Flat]

Very steady at that 7.20 mark at the moment. What are predictions for the interim dividend? I assume something around the 15c mark again? Or will the board be keen to drive a bounce on the shareprice and push up towards 20c?

Board are committed to increasing returns to shareholders. I'm picking 15 - 16.5 c as likely range. Today's announcement will have eyes furiously rolling from a few on here.

[Simsee]

Hi all new to this site. Wondering if anyone has an idea about what happened to CEN today ? No announcement of note other than the woke one from yesterday thanks

[peat]

Today's announcement will have eyes furiously rolling from a few on here.

I just done understand WBC's (financial) motivation to provide cheaper loans for a business achieving ESG goals.
Perversely WBC is now incentivised to hinder CEN's ambitious ESG targets.

Simsee
I don't think anything much happened really , a few more sellers today than buyers?

[Rowdy Flat]

Strong monthly ops report for Dec...bodes well.

[Snoopy]

My first share was Contact Energy after Dad the electrical engineer made sure the whole family got the maximum allocation in the 1999 float. It has under-performed over 20 years as Origin Energy bled it dry and its assets like Sparky (the now decommissioned Otahuhu Gas Fired Station) and the New Plymouth gas storage facility have not been the best in the industry.



Sparky wasn't that old!

It was commissioned in January 2000, upgraded in 2005 from 385MW to 404MW and ceased generation at the end of September 2015. The typical lifespan of a combined cycle gas power station at 30 years is double that. What a debacle.


I have transferred Jaa's top post from the 'My First Share Purchase' thread.

I have also been a Contact Energy shareholder since 1999 and my recollection of these events is somewhat different.

IIRC, the decommissioning of Otahuhu was a result of projected carbon charges going out into the future that tipped the economics in favour of a new geothermal power station, Te Mihi, that Contact built as an effective replacement. The fact that the turbines at Otahuhu still had some significant life left was not ideal. But the residual capital cost in a gas turbine plant is not that significant over a fifteen year life remaining time frame. I suggest the price of gas, the security of gas supply and the cost of any potential carbon offsetting charges would be far more important. It was these factors that lead to the demise of the Otahuhu gas plant.

I think it was still possible these turbines had a market residual value. But I don't recall any announcement of a sale post decommissioning. Of course the turbines were written off so maybe there is no requirement to report what ultimately happened to them? What I did find surprising was that Contact managed to lose money on the Otahuhu land when sold. Losing money by selling suburban land in Auckland must take some special talent!

Not sure by what you mean by the underperformance of the New Plymouth gas storage facility Jaa. This was commissioned to take advantage of the take or pay contract that Contact Energy signed to buy gas. Storing gas that they would have otherwise had to pay for but not take sounds like an excellent business idea to me. To my knowledge the gas storage facility was extremely successful. Granted it has now been sold to a third party that will allow Genesis Energy to use it as well as Contact. But I am not sure that you can use the sale of this facility, that Contact still uses, as 'proof' it was a bad idea. If Contact's Energy's debt had not been so high at the time, I think the facility would not have been sold.

Lastly the 'underperformace' you talk about over 20 years I question. The NZX50 (a gross index that includes dividends) rose from 1902 when it was established on 7th March 2003 to 11,901 on January 23rd 2020. Averaged over 17 years that is a compounding annual rate of return of:

1902(1+r)^17 = 11,901 => r= 11.4% per year

On 7th March 2003 the CEN share price was $4.42. On 23rd January 2020 it was $7.45. Averaged over 17 years that is a compounding annual rate of return of:

$4.42(1+r)^17 = $7.45 => r= 3.1% per year

But that ignores dividends that have averaged 7-8% per year and the initial period of four years before the NZX50 was started when the share price of CEN nearly doubled. So I would argue that Contact Energy has provided returns very close to the NZX50 (or equivalent) since it was listed. Probably slightly above in fact. I would not have expected a 'boring utility' to have done as well as this.

SNOOPY

[Marilyn Munroe]

from Contacts half year profit announcement;

“The impact of the recent under-investment in New Zealand’s ageing gas fields has been acutely felt over the past six months with the supply of natural gas proving unreliable, leading to thermal input costs increasing sharply."

Bur surely the Coalition Government would have consulted widely and foreseen this and not indulged in hasty virtue signaling.

Boop boop de do
Marilyn

[peat]

Dont you think they are deflecting though?
They know they are reliant on gas generation for the 'top' of their delivery quota i.e anything they need to deliver above geothermal and hydro. And yet they were exposed!

[couta1]

Not a good result but the market dont care, up 30c.

[macduffy]

Not a good result but the market dont care, up 30c.

Encouraged by CEN taking the initiative regarding the Bluff smelter, perhaps?

https://www.rnz.co.nz/news/business/409175/contact-energy-profits-tumble-78-percent-from-record-high

[peat]

I wonder how much they paid for their gas supply contracts. Doesnt strike me as the greatest time to be negotiating L/T quota.

[black knat]

Not sure why the market liked it ….. for my part I was encouraged that Tauhara geothermal seems increasingly likely to go ahead… and be contributing from as early as 2023.

[Raz]

https://www.stuff.co.nz/business/119415167/path-cleared-for-aluminium-smelter-to-get-discount-on-64m-annual-transpower-bill

[peat]

https://www.stuff.co.nz/business/119415167/path-cleared-for-aluminium-smelter-to-get-discount-on-64m-annual-transpower-bill

"
"There is no way on earth we could get permission to build a duplicate line through to Manapouri,"


And that is exactly why the EA should be able to ream you for transmission costs.

[turnip]

If the Tauhara geothermal project goes ahead, will there inevitably be a rights issue similar to when Te Mihi was built, or does Contact have other funding options?

[Snoopy]

If the Tauhara geothermal project goes ahead, will there inevitably be a rights issue similar to when Te Mihi was built, or does Contact have other funding options?


Contact has the option of creating new capital out of thin air. This is how Mercury Energy fund the construction of their new power stations. This 'thin air capital' is a creation based on current wholesale power price. 'Thin air capital' is created by revaluing existing renewable electricity generation assets based on the current wholesale power price. This method requires the wholesale power price to keep rising to work.

If the value of an existing power station falls, then the 'thin air capital' can disappear into, you guessed it, 'thin air'. This could happen with a fossil fuelled power station when the cost of generation is suddenly increased by the imposition of a higher carbon tax, for example.

The fact that Contact Energy has so far elected not to raise any 'thin air capital', and instead use 'real capital' for expansion, makes the company a more conservatively geared investment than it would otherwise be. I see that as a good thing.

SNOOPY

[turnip]

Thanks Snoopy. Mercury and Contact did both sell some assets last year, Mercury says it is using the proceeds to build its new wind farm, but I don't suppose Contact could do the same, the Tauhara geothermal project sounds like it will be a much bigger project.

(I hold CEN and MCY, and am looking forward to participating in a rights offer if CEN needs one to build Tauhara.)

[troyvdh]

Given the current price of CEN..being at least a third it was a while ago...am I nuts in thinking that it may be a good buy at present... cheers..perhaps 25 %..sorry

[black knat]

I have been buying. I can't get me head around the price premium being paid for MEL over CEN, they basically own the same or similar assets. Don't think you can go far wrong buying at these prices.... 7.2% and a bit return gross... wow! The aluminium smelter notwithstanding this is cheap buying, for this largely renewable generator

[peat]

Given the current price of CEN..being at least a third it was a while ago...am I nuts in thinking that it may be a good buy at present... cheers..perhaps 25 %..sorry


the latest half year eps was less than a quarter of the pcp. 8.3 vs 38.6

[troyvdh]

Ok...given bank deposit rates at around 2 %....Im guessing CEN ..will more than likely in 5 years will achieve a higher return...like the Clyde Dam aint going anywhere soon..Im an incredibly a simple thinker..cheers

[Entrep]

CEN absolutely smashed today

[Baa_Baa]

CEN absolutely smashed today five cents down is a smashing?

[macduffy]

five cents down is a smashing?

Beat me to it, Baa Baa. Thought I had missed something there for a minute or two.

:blink:

[dreamcatcher]

CEN absolutely smashed today

Wow 5c down is smashed ??... 16c record date 18th March, Number 6 on Direct Brokers Top 10 BUYS + today 4.5m shares traded

[dreamcatcher]

Looking forward to my sizable dividend next Tues

[iceman]

Looking forward to my sizable dividend next Tues

It's been nice to see the nice steady SP recovery. Lets hope it doesn;t take another hammering although we need to be prepared for that. Nice to receive the nice divie in the meantime like with GNE today.

[BlackPeter]

It's been nice to see the nice steady SP recovery. Lets hope it doesn;t take another hammering although we need to be prepared for that. Nice to receive the nice divie in the meantime like with GNE today.

Lets face it - (nearly) all stocks went up during the last couple of days. Given that economists call this the worst crisis since WWII (and I think they are right) would I think it a bit overoptimistic to assume that its all over in a month - shareholders (of any stock) better get used to the roller coaster.

Independent of that - Gentailers are clearly some of the "go to stocks" in times like this. They belong into every portfolio, people always need power. Buying them at the right time is just adding the icing to the cake :):

Hint ... I think there still will be still plenty of "sales" before this whole thing is over ... but not sure we have one at the moment.

[iceman]

Blackrock disclosing a substantial holding of 5.391%. Good to see a vote of confidence from them

[Aaron]

Blackrock disclosing a substantial holding of 5.391%. Good to see a vote of confidence from them

Do you like NZ being bought out by foreigners?

Especially ones that can access cheap money from the Federal Reserve to buy real assets. (although that said it may be on behalf of their foreign clients.)

Disclaimer: want to buy CEN at lower prices hacked off that funny money is probably keeping prices high. (or reasonable depending on your cap rate, yield expectation)

[iceman]

Do you like NZ being bought out by foreigners?

Especially ones that can access cheap money from the Federal Reserve to buy real assets. (although that said it may be on behalf of their foreign clients.)

I do like it when the biggest investment fund manager in the World shows interest and confidence to invest in our share market. Saying this in any ways represents "NZ being bought out by foreigners" is a bit of a stretch. Just wait until you see this "anti foreign investment Government" open NZ up completely for foreign investment in the next few weeks. Rod Drury already asking them to let in a few billionaires to buy land in return for residency visas !!

[Aaron]

I do like it when the biggest investment fund manager in the World shows interest and confidence to invest in our share market. Saying this in any ways represents "NZ being bought out by foreigners" is a bit of a stretch.

A bit of a stretch?? I thought Blackrock was US based not resident in NZ? Maybe Larry Fink is one of the billionaires of which you speak.

[see weed]

Do you like NZ being bought out by foreigners?

Especially ones that can access cheap money from the Federal Reserve to buy real assets. (although that said it may be on behalf of their foreign clients.)

Disclaimer: want to buy CEN at lower prices hacked off that funny money is probably keeping prices high. (or reasonable depending on your cap rate, yield expectation)
Maybe it is New Zealand shareholders selling out to foreigners, just like real estate for the last 180 years. The biggest loss of a nz company to foreigners, in the last couple years, would have to be A2 milk, which has gained about 3900% in last 5 years, out stripping real estate.

[macduffy]

I do like it when the biggest investment fund manager in the World shows interest and confidence to invest in our share market. Saying this in any ways represents "NZ being bought out by foreigners" is a bit of a stretch. Just wait until you see this "anti foreign investment Government" open NZ up completely for foreign investment in the next few weeks. Rod Drury already asking them to let in a few billionaires to buy land in return for residency visas !!

Neither of which does anything to boost NZ's economy. Inflates NZ asset prices? Certainly!

:ohmy:

[Aaron]

Maybe it is New Zealand shareholders selling out to foreigners, just like real estate for the last 180 years. The biggest loss of a nz company to foreigners, in the last couple years, would have to be A2 milk, which has gained about 3900% in last 5 years, out stripping real estate.

It is definitely NZers selling out. Contact was owned by Origin for many years and they seemed to be continually trying to enrich themselves at the expense of the minority shareholders anyone remember Phil Pryke?

I should really get my facts straight first but I was imagining Blackrock or Blackrock investment funds can issue bonds at very very low interest rates that I cannot access and therefore they would have a much lower hurdle rate when investing. One that I struggle to compete with.

A quick look at their 31/12/2019 annual reports show a range of between 1.25% to 4.25%. NZ two year fixed home mortgages are about 3.4% so maybe I am just being a cry baby because I wasn’t fast enough to get the yield I wanted.

I struggle to see the benefit to NZ when foreigners buy up successful businesses and assets that are already in existence and take the income offshore.

If they are building new assets or plant that would be a different story.

I have always liked this story to get my xenophobic juices running.
http://www.stuff.co.nz/business/opinion-analysis/10400785/We-need-to-talk-about-that-red-carpet-rollout?utm_content=bufferc0918&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer

A bit worse than Blackrock bidding up asset prices.

[Aaron]

Nice work if you can get it.
https://www.zerohedge.com/markets/fed-will-start-buying-bond-etfs-tomorrow-blackrock-make-over-10-billion-fees

and these are the pr**ks we are competing against for shares in Contact Energy. They must have trouble getting rid of their cash. I suppose they could lift their compensation but they would still need to invest it somewhere.

How there is not a conflict of interest in the US of A with Blackrock front running the Federal Reserve bond buying program over there would be hard to believe.

What is surprising is that everyone is OK with it.

[Simsee]

What on earth is going on with the smelter ?

[King1212]

Very uncertain.....my gut feeling....Rio is going to shut it down. As global economy is so bleak...n aluminum price is not good.

Unless....the labour gives them more lollies...

[ananda77]

Anyone knows this kind of trading pattern? A price decline in the last minute of trading or after market trading? This has been happening now the second day in a row in cen.

[King1212]

Uncertainty in Rio tinto about our smelter

[waterboy]

Anyone knows this kind of trading pattern? A price decline in the last minute of trading or after market trading? This has been happening now the second day in a row in cen.

Don't know what is behind it but have noticed this stock always has large trades that go through at close or just after which is what drives the price up or down for the day. What happens during the day seems to mean nothing.

The may production report looked interesting to me in that the cost of production is much lower than last year and more than off sets the lower consumption due to lockdown etc. I would have thought this would push the price sp up as it should mean good profit but hasn't happened.
No expert in this area dyor

[ananda77]

Don't know what is behind it but have noticed this stock always has large trades that go through at close or just after which is what drives the price up or down for the day. What happens during the day seems to mean nothing.

The may production report looked interesting to me in that the cost of production is much lower than last year and more than off sets the lower consumption due to lockdown etc. I would have thought this would push the price sp up as it should mean good profit but hasn't happened.
No expert in this area dyor

yes, I noticed the mass market cash netbacks as well. Regarding the trade pattern, I think they have to be after market trades. I had an -on market order- in for the day at a higher price then the closing price, but lower than the current price range during the day, that got filled at the lower closing price. I think this is not possible during market hours.

[dreamcatcher]

Contacts SP has been well manipulated in a price range for maybe 2 months. Clearly (to me) someone is accumulating for future dividends in a no interest world. Due for an upwards breakout soon............. IMO

[waterboy]

Contacts SP has been well manipulated in a price range for maybe 2 months. Clearly (to me) someone is accumulating for future dividends in a no interest world. Due for an upwards breakout soon............. IMO

Due for a breakout you reckon...could start today...ask me again after the manipulator has done their thing tonight.;)

[Joshuatree]

Alcoa on ASX re aluminium in May.

Alcoa CEO says economic recovery is still uncertainwww.afr.com › Companies › Mining (https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=&cad=rja&uact=8&ved=2ahUKEwjS0ODtqrfqAhX78HMBHQe5AzYQFjABegQIARAB&url=https%3A%2F%2Fwww.afr.com%2Fcompanies%2Fmining %2Falcoa-ceo-says-economic-recovery-is-still-uncertain-20200515-p54t6y&usg=AOvVaw28b7rIGvKrtyOgh_wQ6cI5)

[King1212]

Very uncertain.....my gut feeling....Rio is going to shut it down. As global economy is so bleak...n aluminum price is not good.

Unless....the labour gives them more lollies...


Well, my gut feeling is right again...

[Joshuatree]

Alcoa also cancelled a contract with ABC thats is been renewing for 50 years for the supply of Lime.:cursing:

[see weed]

:eek2::(:scared::mellow::ohmy::scared::scared::sca red:

[see weed]

Don't know what is behind it but have noticed this stock always has large trades that go through at close or just after which is what drives the price up or down for the day. What happens during the day seems to mean nothing.

The may production report looked interesting to me in that the cost of production is much lower than last year and more than off sets the lower consumption due to lockdown etc. I would have thought this would push the price sp up as it should mean good profit but hasn't happened.
No expert in this area dyor
It is still going on, end of day shenanigans. Have been buying in bits and pieces on close the last couple of days to get av. price down and hopping they don't drop the div too much. The yld is looking good at 6% plus. Best time to buy is on close lately, but will probably do the opposite tomorrow. Anyone on here topping up at these lower levels?

[RupertBear]

It is still going on, end of day shenanigans. Have been buying in bits and pieces on close the last couple of days to get av. price down and hopping they don't drop the div too much. The yld is looking good at 6% plus. Best time to buy is on close lately, but will probably do the opposite tomorrow. Anyone on here topping up at these lower levels?

Yes me, just a few, to try and get my average down a bit as well but aware I may be falling into one of those divie traps. The Bear doesnt like traps :(

[Southern Lad]

Hillside stability problems above Lake Dunstan has potential to cause CEN some headaches

https://www.odt.co.nz/regions/central-otago/crews-aim-keep-road-open-after-cromwell-landslip (https://www.odt.co.nz/regions/central-otago/crews-aim-keep-road-open-after-cromwell-landslip)

[iceman]

It is still going on, end of day shenanigans. Have been buying in bits and pieces on close the last couple of days to get av. price down and hopping they don't drop the div too much. The yld is looking good at 6% plus. Best time to buy is on close lately, but will probably do the opposite tomorrow. Anyone on here topping up at these lower levels?

Yes BaaBaa I have topped up a little in the low 560s. I assume they will need to lower dividend somewhat from 2022 or 2023 onwards when their EBIDTA will take a significant hit, but even if they lower it to 30c (I hope that will be the floor), we are still talking about a 5.3% odd dividend and potentially some upside in the SP from current level.

[sb9]

Yes BaaBaa I have topped up a little in the low 560s. I assume they will need to lower dividend somewhat from 2022 or 2023 onwards when their EBIDTA will take a significant hit, but even if they lower it to 30c (I hope that will be the floor), we are still talking about a 5.3% odd dividend and potentially some upside in the SP from current level.

Got back on the register after 4 years, looks very appealing from yield perspective albeit might be slightly lower levels due to Smelter issues. Hey, anything is better than paltry 1% out there...

[King1212]

Wait .....it will go around $5...

[Jantar]

It is still going on, end of day shenanigans. Have been buying in bits and pieces on close the last couple of days to get av. price down and hopping they don't drop the div too much. The yld is looking good at 6% plus. Best time to buy is on close lately, but will probably do the opposite tomorrow. Anyone on here topping up at these lower levels? Yes. I topped up with some late afternoon. I am very happy that I am now able to buy and sell CEN when I want to, rather than wait for small windows where inside knowledge didn't apply.

[sb9]

Yes. I topped up with some late afternoon. I am very happy that I am now able to buy and sell CEN when I want to, rather than wait for small windows where inside knowledge didn't apply.

That's a nice endorsement, well played.

[Jantar]

Hillside stability problems above Lake Dunstan has potential to cause CEN some headaches

https://www.odt.co.nz/regions/central-otago/crews-aim-keep-road-open-after-cromwell-landslip The biggest headache for Contact from that wee slip will be that the General Manager Hydro, Dispatch Manager and Asset Managers will all have to work from home for a day or two, just like they did right through lockdown. There are a few other staff who also live in Cromwell and work at Clyde who will be inconvenienced. That slip is upstream of the junction of the two arms of Lake Dunstan at a point where the Clutha arm of the lake narrows, but is still quite deep, so will have no affect on operations. The size of the slip "is estimated at about 30 metres long, 20 metres wide and 15 metres deep", or around 9,000 cu m.

[Onion]

CEN SP has been hit more than MEL by the Tiwai shutdown announcement. Any reason behind the difference?

[Sideshow Bob]

Hillside stability problems above Lake Dunstan has potential to cause CEN some headaches

https://www.odt.co.nz/regions/central-otago/crews-aim-keep-road-open-after-cromwell-landslip (https://www.odt.co.nz/regions/central-otago/crews-aim-keep-road-open-after-cromwell-landslip)

Those hills are well known for instability, and some tunneling etc done when they built the dam. Heard some horror stories....

[Jantar]

Those hills are well known for instability, and some tunneling etc done when they built the dam. Heard some horror stories.... Yes, there are a large number of known landslide sites, the best know is probably the Cairnmuir Slide which looks like a lot of terraces when seen from the road on the other side of the river. Most of these slides have had remedial and prevention work to stop the slide being active, and all of them are monitored.

This one at Cromwell is a slip, not a slide. The difference being that a slip is when surface material breaks away and a slide is when the whole hillside comes down.

[King1212]

CEN SP has been hit more than MEL by the Tiwai shutdown announcement. Any reason behind the difference?


Mel got pumped up really high before the announcement.....otherwise it will be down to $4

[see weed]

Mel got pumped up really high before the announcement.....otherwise it will be down to $4
Now that you have mentioned it. The same thing happened to CEN a few days before the closure announcement. The sp went up about 63c like someone created a buying frenzy, then dropped $1.26c over 4 days. If you have a look at the 3 month chart on both companies, it sticks out a mile. Did insiders sell there shares in this FOMO Frenzy?.....FOMOF. I got caught in the up frenzy, buying in for the div. Am not too worried, will just buy more and hopefully get a big div.

[King1212]

Been following Mel n Cen for awhile. On n off trading, was really cautious since the last update smelter closing. I m 100 person sure the smelter will be closed due to global demand.

Yes, both being pumped a week to high before the Announcement came up.

Possible hedge funds pumped it n then bought back

[sb9]

While CEN seem to be lagging behind MEL powering ahead today

[sb9]

Looks primed to break through $6 band with FY results due to be out on Monday 10th.

[bull....]

Looks primed to break through $6 band with FY results due to be out on Monday 10th.

dividend chasers might chase all the gentailers shortly

[see weed]

dividend chasers might chase all the gentailers shortly
Have already started for the last 4 weeks. Will buy my last parcel today. Seems like a good yld at over 5%.

[see weed]

Have already started for the last 4 weeks. Will buy my last parcel today. Seems like a good yld at over 5%.
zzzzzzzzzzzzzzz

[bull....]

Have already started for the last 4 weeks. Will buy my last parcel today. Seems like a good yld at over 5%.

having run , you must have beaten the mob

[sb9]

Up about 4% or so but on light volume though...

[fish]

Up about 4% or so but on light volume though...

rumours another pot at tiwai being readied to re-open in september

[bull....]

rocking close

[tommy_d]

rumours another pot at tiwai being readied to re-open in september
be careful circulating that rumour, and anodes in general...
happy to have increased CEN earlier this week :)

just had a thought, assuming this is commonly referenced as background re tiwai etc?
https://www.nzas.co.nz/files/2011042692804-1303766884-1.pdf

terrifying if not...

[sb9]

rumours another pot at tiwai being readied to re-open in september
Does seem that way..

https://www.goodreturns.co.nz/article/976517289/nz-shares-flat-as-tiwai-smelter-rumours-swirl.html

[see weed]

having run , you must have beaten the mob
Yes. 4 parcels over $6 and 11 parcels from 5.60 to 5.95 to get av price down. Now 10k in the green:).

[dreamcatcher]

Wonder if we will ever see $9+ again.............

[bull....]

Wonder if we will ever see $9+ again.............

if term deposits go negative yield on gentailers will look like gold

[RTM]

if term deposits go negative yield on gentailers will look like gold

Even at current rates they look like silver !

[sb9]

Wonder if we will ever see $9+ again.............

My pick is we may see sp with 8 handle by end of year depending on outlook commentary at FY results announcement on Monday 10th Aug, more importantly around divvy.

[Snoopy]

rumours another pot at tiwai being readied to re-open in september

What is the source of your 'rumour' fish?

At first glance your rumour seems preposterous. After all, Tiwai has announced they are going. They have even given a shut down date. It would seem inconceivable that they would suddenly plan to ramp up production. So I have looked into this a bit more closely.

1/ On July 9th 2020 the closure of Tiwai Point by August 2021 was announced. This isn't the start of when the production facilities are being turned off. It is the end point. So if they need a couple of months to shut down, you would have to think there will be no more production by the end of May 2021. Planning for this would have to start from about now, and at the latest by the beginning of December 2020.

2/ The shut down decision would have been made in the month before July 9th, at the June board meeting of Rio Tinto. Here is a link to the graph of world spot aluminium market prices over that period.

https://markets.businessinsider.com/commodities/aluminum-price

A Covid-19 price slump is very evident. But there has been a sharp recovery since from less than $US1500/tonne to nearly $US1750/tonne, bouncing back to where we were in February 2020. A decision on the fate of Tiwai had been expected about this time, but was seemingly delayed. From this we can deduce that at $US1750/tonne, the closure of Tiwai was not a certainty.

3/ Jacinda Ardern reopened potline number 4 in December 2018. At that time this commodity had built a base price around $US2,000/tonne. Even with the post Covid-19 recovery, we are somewhat short of that.

4/ If the announced closure is actually a 'super hard ball' play by Rio management, and they are hoping for even more power concessions, what signal would opening up another pot line now under current power pricing arrangements give?

My conclusion is that there will be no opening of an additional potline. The price recovery of Aluminium isn't enough. And to do so would destroy Rio's long term negotiating power on electricity prices. Instead the jump in the Contact share price is in anticipation of the Contact results being announced on Monday. A rise in the share price towards 'result announcement day' when a share price has been beaten down in the months before is normal share price behaviour. Shareholders looking for some good news after a rough ride.

SNOOPY

[iceman]

I saw a news article somewhere a couple of days ago, saying contractors are being told work is coming to restart another pot line. Probably the same as fish was referring to. Unfortunately I can't remember where I saw it and can't find it at the moment

[iceman]

Here it is but need for subscription to read it. This the first paragraph in the article:

"Less than a month after signalling that it could close the Tiwai Point aluminium smelter, there are signs the owner may be preparing to restart a potline which was closed during lockdown."

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12354093

[see weed]

Any predictions on div next month.....14c ,17c, 20c or 23c or non cents:eek2:.

[sb9]

Any predictions on div next month.....14c ,17c, 20c or 23c or non cents:eek2:.

No need to wait for that long, you'll be in the know by as early as Monday. For past 3 years, FY divvy was 15c, 19c, and 23c, my pick is it'll be about 25c or so for current period.

[dreamcatcher]

@Bull........ Both CEN & MEL starting to look like Gold

https://www.goodreturns.co.nz/article/976517289/nz-shares-flat-as-tiwai-smelter-rumours-swirl.html

[fish]

[QUOTE=Snoopy;834469]What is the source of your 'rumour' fish?

Business desk yesterday-
Meridian has been in talks with smelter owner Rio Tinto to try to extend the scheduled closure of the aluminium smelter beyond August next year and allow for a more orderly exit of the country’s biggest electricity consumer. Today, media reported smelter staff had said the fourth potline would be operating in September potentially exciting investors who saw it as a signal the smelter may remain open.

I was sceptical about it and only posted it as a comment after 5pm in response to the previous post.
I cannot post the whole link as it is behind a paywall and would be removed if I tried

[see weed]

No need to wait for that long, you'll be in the know by as early as Monday. For past 3 years, FY divvy was 15c, 19c, and 23c, my pick is it'll be about 25c or so for current period.
I be happy with anything 15c or above. 25c and I would be over the moon. Yld still above 6% at 6.21.

[Jaa]

I was sceptical about it and only posted it as a comment after 5pm in response to the previous post.
I cannot post the whole link as it is behind a paywall and would be removed if I tried

What is wrong with posting paywalled articles? Please post them as some people will have the subscription. The subscription price is likely a good investment for any remotely serious investor. We all benefit from a strong media holding corporate power accountable.

[sb9]

Giving back most of gains of y'day, bit of sucker rally by the looks...

[peat]

Giving back most of gains of y'day, bit of sucker rally by the looks...

au contraire imo.
its broken out of the post covid range.
supposedly CEN will take a hit from Tiwai but still, might be some reasonable odds here.

[fish]

What is wrong with posting paywalled articles? Please post them as some people will have the subscription. The subscription price is likely a good investment for any remotely serious investor. We all benefit from a strong media holding corporate power accountable.

Last time I posted a whole article from BusinessDesk my post disappeared quickly-I suspect they have a means of making this happen.
Posting a paragraph seems to remain .

[sb9]

Last time I posted a whole article from BusinessDesk my post disappeared quickly-I suspect they have a means of making this happen.
Posting a paragraph seems to remain .

Yeah, positing full paywalled articles on sites like this is in breach of their terms and conditions. A short synopsis or summary is permissible.

[iceman]

Last time I posted a whole article from BusinessDesk my post disappeared quickly-I suspect they have a means of making this happen.
Posting a paragraph seems to remain .

The Administrator and owner of ST has asked people not copy & paste full texts from articles on access controlled sites They can get into trouble if this site is used for such plagiarism but posting a paragraph with a link to the article or referencing where it is taken from, seems to be OK. Subscribers of the Herald or other websites, are also breaking the law by doing so.

[Jaa]

Last time I posted a whole article from BusinessDesk my post disappeared quickly-I suspect they have a means of making this happen.
Posting a paragraph seems to remain .

As the others have said, I meant posting links to articles is fine. A small quote too.

Re-posting whole articles anywhere on the web is poor etiquette and a breach of copyright. Media owners deserve to get paid for their content. If not there won't be any left! :eek2:

[fish]

Just to get it right after some consideration of copyright I will paste a small quote and state the reference as post #1774 .

[iceman]

Just to get it right after some consideration of copyright I will paste a small quote and state the reference as post #1774 .

If you look at post #1733 I think you'll find that's exactly what I did.

[tommy_d]

rumours another pot at tiwai being readied to re-open in september

"But she addressed speculation in a newspaper report that the smelter had told contractors to prepare for the September reopening of the smelter’s fourth and smallest potline, which it closed in April because of operating requirements during the Covid crisis (https://www.stuff.co.nz/business/120695833/rio-tinto-to-close-one-of-four-potlines-at-tiwai-point-aluminium-smelter).

The smelter had “no current plans” to reopen the potline, she said."

from stuff article https://www.stuff.co.nz/business/122380602/new-final-decision-on-aluminium-smelter-in-four-to-six-weeks-says-forsyth-barr

[iceman]

"But she addressed speculation in a newspaper report that the smelter had told contractors to prepare for the September reopening of the smelter’s fourth and smallest potline, which it closed in April because of operating requirements during the Covid crisis (https://www.stuff.co.nz/business/120695833/rio-tinto-to-close-one-of-four-potlines-at-tiwai-point-aluminium-smelter).

The smelter had “no current plans” to reopen the potline, she said."

from stuff article https://www.stuff.co.nz/business/122380602/new-final-decision-on-aluminium-smelter-in-four-to-six-weeks-says-forsyth-barr

I think this is far from over. Lets see what happens. I'm watching Rio Tinto play the same game with their smelter in Iceland

[tommy_d]

I think this is far from over. Lets see what happens. I'm watching Rio Tinto play the same game with their smelter in Iceland
it's interesting eh. There must be a list of their smelters around the world, and what the power supply situations are in each of them. Whether they own the generation they use, co-own, etc..