Expect will buy more for their funds but currently 'bargain hunting' from last few days
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Contact says extension for NZAS is good news
14/1/2021, 8:30 amGENERAL14 January 2021
Contact Energy (‘Contact’) CEO Mike Fuge welcomed the news that the life of New Zealand’s Aluminium Smelter (‘NZAS’) at Tiwai Point will be extended until at least the end of 2024 while an economic transition for Southland is developed.
“Today’s announcement of the deal between Meridian and NZAS ensures sustainable smelter operations in the medium term and allows time to plan for an ultimate exit of New Zealand’s largest energy user. This is great news for Southland and New Zealand, global carbon emissions, and Contact’s shareholders.”
As part of the arrangement announced today, Contact has agreed to supply Meridian Energy with a portion of the electricity required to power the NZAS smelter at Tiwai Point. Contact will provide an average of 100 megawatts of baseload electricity through until the end of 2024 (assuming the smelter requires 572 megawatts of electricity).
“We are pleased to have played our part in helping secure the financial sustainability of the unique low-carbon smelter at Tiwai and retain the 1,000 high-paying jobs in Southland and the 1,600 associated contractor and supplier roles too,” Mr Fuge said. “Many other jobs around New Zealand would also have been lost if there was a disorderly exit.”
He said Contact was continuing to advance its “world-class” Tauhara project in readiness for an investment decision. “The Tauhara geothermal project is New Zealand’s best low-carbon renewable electricity opportunity. It will operate 24/7, is not reliant on the weather and is ideal for displacing baseload fossil fuel generation.”
My little success story for 2020. CEN was my best stock. Bought 17 blocks over 6 weeks from $6.70 on 3/7/20 to $6.31 on 18/8/20. My average price for the lot was $6.179. CEN paid me 20k div on 15/9/20. Sold my last block of 4000 on 12/1/21 for $9.58 which I had bought on 14/7/20 for $5.60.:t_up::cool::t_up:
As expected Contacts TP upgraded to more then $9..............:)
"The renewable electricity generators bounced back from recent selling, Meridian Energy up 4.4 percent at $7.68 and Contact Energy up 4.1 percent to $8.83.
McIntyre said some brokers had upgraded Contact’s target price to more than $9 after it was announced the Tiwai Point aluminium smelter would remain open until 2024.
Both stocks have also benefited in the past month from investors buying clean energy ETFs to position themselves for Biden’s push to clean up the US energy sector."
Mr Snoopy are you still of the opinion that Fair value for CEN is $7.42? #1884
Good question FatTed. The search function on the forum appears to be down as I write this. But my key valuation post is actually 1821. You can go through that post and look at all the key assumptions on how the valuation was built up. But I can short circuit that procedure by asking you a few key questions.
1/ Do you think a 4.5% gross dividend return over the business cycle for CEN is fair?
2/ Do you think climatic conditions of the last ten years and all the inflows and outflows and weather events that that time frame incorporates is indicative of what we will see over the next ten years?
3/ Do you think that Contact's tax payments of the last few years have been excessive and that consequently the imputation rate on dividends will reduce going forwards?
4/ Do you believe that Contact's 'thin air capital' has real value going forwards?
5/ Do you believe that the electricity market will be generally flat from a demand perspective for the next ten years?
I can answer a qualified 'yes' to all those questions, 'In my opinion'. But I may not be right in answering with five 'yeses'. Consequently if you have a different opinion than I do answering those questions -and it is quite reasonable that you might - then you will not agree with my valuation.
The key questions, where I waiver on my own answers, are questions 4 and 5. 'Thin air capital' (Q4) really only has value if you are going to build a new power station with it. But if electricity demand is flat for ten years (Q5), then you don't need to build a new power station. (Unless of course you are replacing one of your existing power stations OR taking generation market share from your competitors.)
That is the long answer to your question.
The short answer is I think the 'thin air capital' adjustment to my valuation to my base price of $5.90 (post 1841) is still valid. I also believe my revised 'thin air capital' multiplication factor of 1.271 (post 1889) is valid.
My current Contact Energy 'fair value' share price valuation is now: $5.90 x 1.271 = $7.50 (up from the $7.42 you referenced before).
With the share closing at $7.20, CEN is therefore 'modestly undervalued' (by 4%). I prefer to buy my shares at a bigger discount to fair value than that. And I notice the closing offer price is still $7.55 (above fair value).
I wouldn't be surprised to see the share price bounce on Monday. But we shall see!
SNOOPY
Thanks for such a detailed reply