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
One more comment on where my investment style differs from some of my fellow CEN shareholders. I don't worry too much about even reading those monthly operational reports. I know they can be a pointer as to whether a year is going well or not, and maybe whether a special or increased dividend might be paid . But as long as the dividend policy does not change, I think many of these seasonal adjustments eventually average out. IOW they make no difference to the big picture of the long term investor. And long term I am. I bought my initial CEN holding at float time over twenty years ago, (although I do admit most of my holding has been acquired far more recently than that). Still I have never sold any. And as long as they keep satisfying my long term income target from my shareholding I doubt if I ever will!
SNOOPY
But surely when CEN hit a totally irrational $11 the dividend policy was irrelevant. They have dropped 35% from that level and are still falling. That’s a lot of future dividends......
I sold at $11 because it made no sense not to.
I’ll look to re-enter when the S&P index and Blackrock sort themselves out.
Some details of the S&P proposal (which are light on company by company specifics)
Initial consultation (9 Dec)
https://www.spglobal.com/spdji/en/do...t12-9-2020.pdf
Confirmation of what is changing (11 Feb)
https://www.spglobal.com/spdji/en/do...s2-11-2021.pdf
Did the share price really get to $11? Looking back at the chart I see it did -even if it was a short lived spike- and with hindsight you certainly 'nailed the trade' Biker. Well done! I think $9 was irrational. So why didn't I sell at $11? It is the old question of 'if you sell, where do you put your money? I have a term deposit maturing with an interest rate of under 1%. I certainly don't want more of those. Even at $11, the CEN yield is better!
The other factor that was weighing on my mind was that I am still a little underweight in CEN for my liking and my average entry price is well under $5. So really I am well in profit and expect to remain so, no matter how low this dip goes. If CEN was a person, I would be on the sidelines of the swimming pool shouting :
"Dive, dive dive!"
By the time that happens it will be too late. The buying window for CEN is about to open.
SNOOPY
Contact need more capital
What’s that all about
http://nzx-prod-s7fsd7f98s.s3-websit...533/340251.pdf
dividends slashed alright , but in the context of things they were over - paying past div's anyway. so going ahead be lower div's on a higher amount of shares unless they significantly grow revenues.
glad i sold out near high's will be able to re-invest one day for double the amount of shares and a bigger dividend income because of that.
Juicy. Big drop coming. $78m interim earnings for a $5b+ company and dividend slashed which was one of the only things keeping this pumping.. oh plus now they need to raise capital!?