Contact Energy - CEN Chart

[BlackPeter]

the real threat to power generators would be solar panel uptake with no offsetting increase in demand from electric cars.
Solar Electric Cars are in development but not sure if they will be so much more expensive than electric car without the solar that they won't become mainstream.
"(Dutch manufacturer) Lightyear is still in the concept phase. It hopes to build 10 cars by 2019. Cost of the completed cars is said to be €119,000."
https://cleantechnica.com/2017/07/07...ome-lightyear/
"Toyota is now offering a solar roof on the Prius Prime that uses solar cells manufactured by Panasonic. Tesla is moving rapidly toward making glass roofs available on all its cars. With is close partnership with Panasonic in the Gigafactory project, there’s a good chance that solar-powered Teslas will be offered in the near future."

Not really a threat. Just apply the laws of physics ... The sun delivers in the outside regions of our atmosphere roughly 1.367 kW/sqm (the so called solar constant). Filter that through the atmosphere and you can get on any one sqm under really good conditions realistically maybe one kW sunlight per hour as input for your solar cells. That's solar energy, not electricity produced by solar panels. Solar panels are rather inefficient in producing electricity - so you are lucky to turn this 1 kW into some 100 W per sqm in electrical power (this is while the sun is shining and hitting the panels at an angle close to 90 degrees).

You have these good conditions only a handful of hours per day on sunny days. On cloudy or foggy days the output is between 1 to 10% of above.

Now - even a small car with a weak electrical engine driven very economically will need between 10 and 20 kW (for how long you choose to drive it). Just do your numbers - a solar roof with a handful of sqm might be a fancy gadget, but it will never power a car - even if you live in a country with 360 days sunshine per year. The numbers just don't add up.

Clearly no danger to the electricity industry.

Thinks might look different if everybody builds a large solar farm onto their front lawn and store the energy in an spare battery for their car. This might work as long as you live in a country without clouds and winter ...

[tobo]

Thanks for those numbers, BP. I did have a feeling that it seemed a tall order to get enough power from just a little car roof and was surprised to find that Dutch company thinking they could do it.

[oldtech]

Not liking the look of the chart on this at the moment, the 50-day EMA has crossed the 200-day EMA. Unfortunately I bought this at too high a level so it's probably not worth getting out at this point, I might just have to ride it out.

Still, there's always the dividend to look forward to ...

[rmnz]

I paid too much for CEN too, lesson learned!

[dreamcatcher]

Plenty of water now so expecting SP to increase

[Snoopy]

FY2015	Contact Energy	Mighty River Power
No. Shares	733.4m	1,400m
Share Price	$5.13	$2.61
Normalised eps	23.6c	11.1c
Normalised PE	21.7	23.5
Normalised NPAT Margin	7.1%	9.3%
ROE (Assets at Cost)	10.5%	117%
Bank Debt	$1,750m	$1,177m
Min. Debt Repayment Time	10.1 years	7.6 years
Snoopy's Fair Share Price Valuation	$5.87	$2.99
Market Discount to Fair Value	-13%	-13%

Notes:

1/ ROE for MRP of 117% not a misprint.
2/ CEN valuation does not contain an allowance for 'thin air capital', while MRP does. But now that CEN has closed down their baseload Otahuhu B station, the power stations that are left may start to develop 'thin air capital' as MRPs power stations do now. Nevertheless up until now it has been Contact policy not to create 'thin air capital'.
3/ Share prices taken from the middle of the afternoon in the market today. MRP share price reduced by 11c to allow for upcoming final dividend. (CEN is already ex the final dividend).
4/ Contact balance sheet is ex the payment of the 50c special dividend on June 23rd, but prior to payment of the 15c final dividend. This is why Contact is more indebted, as reflected in the 'minimum debt repayment time' ( Total bank debt/NPAT ).

With all that , in relative terms, each investment at this afternoon's price is equally as good as each other. It is possible to buy both at a 13% discount to Snoopy's fair value. In one way I am annoyed because I was hoping to figure out which was the better one to buy. In another way I am relieved because it shows that perhaps my valuation method is not too far out of whack with the view of Mr Market. IOW Mr Market is doing his job valuing these two shares appropriately!

I have got behind in my 'head to head' comparison of the two gentailers I now hold. Time for a catch up.

FY2016	Contact Energy	Mercury Energy
No. Shares	715.5m	1,400m
Share Price	$4.95	$2.96
Normalised eps	22.2c	10.3c
Normalised PE	21.4	28.7
Normalised NPAT Margin	7.4%	9.3%
ROE (Assets at Cost)	21.0%	70.2%
Bank Debt	$1,696m	$1,177m
Min. Debt Repayment Time	10.6 years	8.1 years
Snoopy's Fair Share Price Valuation	$5.74	$2.83
Market Premium or Discount to Fair Value	-14%	+4.6%

Notes:

1/ ROE for MCY of 70.2% not a misprint.
2/ CEN valuation does not contain an allowance for 'thin air capital', while MCY does. But now that CEN has closed down their baseload Otahuhu B station, the power stations that are left may start to develop 'thin air capital' as MRPs power stations do now. Nevertheless up until now it has been Contact policy not to create 'thin air capital'.
3/ Share prices taken from the market close on 30-09-2016.

The snapshot view shows a clear 'investor value advantage' for Contact Energy. This is possibly a downstream effect of the discounted share placement from the Origin Energy sell down still affecting the market. This sale occurred early in the financial year (announced 4th August 2015). So by 30-09-2016, investors have had several months to accumulate CEN shares at a discount to its closest peer. Note that the indicators of 'Net Profit margin' and 'MDRT' favour Mercury Energy though. You could argue that on these fundamental metrics, Mercury is the stronger company and that investors will happily pay more to acquire a piece of Mercury on that basis.

SNOOPY

[Snoopy]

FY2016	Contact Energy	Mercury Energy
No. Shares	715.5m	1,400m
Normalised eps	22.2c	10.3c

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 Year	CEN Normalised eps	MCY Normalised eps
2009	27.0cps
2010	25.3cps
2011	22.4cps	11.5cps
2012	24.6cps	10.8cps
2013	27.5cps	10.5cps
2014	27.1cps	13.3cps
2015	22.0cps	10.1cps
2016	22.2cps	10.3cps
Multi Year Average	24.8cps	11.1cps

CEN Business Cycle share Price Average Value:

= 24.8c / ( 0.72 x 0.06) = $5.74 (based on a 6% gross desired earnings yield before tax). This is the 'fair value' as published in the adjacent table.

MCY Business Cycle share Price Average Value:

= 11.1c / ( 0.72 x 0.06) = $2.57 (based on a 6% gross desired earnings yield before tax). This is the 'fair value' as published in the adjacent table.

$2.57 x 1.1 = $2.83 (see post 887 MCY thread "FY2016 Gross earnings yield valuation (Part 2)")

SNOOPY

[Snoopy]

FY2016	Contact Energy	Mercury Energy
No. Shares	715.5m	1,400m
Share Price	$4.95	$2.96
Normalised eps	22.2c	10.3c
Normalised PE	21.4	28.7
Normalised NPAT Margin	7.4%	9.3%
ROE (Assets at Cost)	21.0%	70.2%
Bank Debt	$1,696m	$1,177m
Min. Debt Repayment Time	10.6 years	8.1 years
Snoopy's Fair Share Price Valuation	$5.74	$2.83
Market Premium or Discount to Fair Value	-14%	+4.6%

Notes:

1/ ROE for MCY of 70.2% not a misprint.
2/ CEN valuation does not contain an allowance for 'thin air capital', while MCY does. But now that CEN has closed down their baseload Otahuhu B station, the power stations that are left may start to develop 'thin air capital' as MRPs power stations do now. Nevertheless up until now it has been Contact policy not to create 'thin air capital'.
3/ Share prices taken from 30-09-2016.

The snapshot view shows a clear 'investor value advantage' for Contact Energy. This is possibly a downstream effect of the discounted share placement from the Origin Energy sell down still affecting the market. This sale occurred early in the financial year (announced 4th August 2015). So by 30-09-2016, investors have had several months to accumulate CEN shares at a discount to its closest peer. Note that the indicators of 'Net Profit margin' and 'MDRT' favour Mercury Energy though. You could argue that on these fundamental metrics, Mercury is the stronger company and that investors will happily pay more to acquire a piece of Mercury on that basis.

FY2017	Contact Energy	Mercury Energy
No. Shares	715.5m	1,400m
Share Price	$5.50	$3.39
Normalised eps	18.7c	12.0c
Normalised PE	29.4	28.3
Normalised NPAT Margin	6.4%	10.6%
ROE (Assets at Cost)	18.9%	55.6%
Bank Debt	$1,527m	$1,107m
Min. Debt Repayment Time	11.4 years	6.6 years
Snoopy's Fair Share Price Valuation	$5.58	$2.85
Market Premium or Discount to Fair Value	-5.2%	+19.0%

Notes:

1/ ROE for MCY of 55.6% not a misprint.
2/ CEN valuation does not contain an allowance for 'thin air capital', while MCY does. But now that CEN has closed down their baseload Otahuhu B station, the power stations that are left may start to develop 'thin air capital' as MRPs power stations do now. Nevertheless up until now it has been Contact policy not to create 'thin air capital'.
3/ Share prices taken from the market close on 30-09-2017.

The snapshot view shows a clear 'investor value advantage' for Contact Energy, although the PE ratio gap has now closed substantially. Could this still be a downstream effect of the discounted share placement from the Origin Energy sell down still affecting the market? This sale occurred early in the previous financial year (announced 4th August 2015) yet it still could be casting a very long shadow. More likely is the relatively poor operational result for Contact over FY2017. Note that the indicators of 'Net Profit margin' and 'MDRT' still favour Mercury Energy though. Yet despite being relatively weaker, Contact is still in a strong position given the relative security of cashflows in the energy markets in which it operates.

As I write this both shares are trading below their September 30th valuations ( CEN is $5.35 and MCY is $3.22. ) This means the the variations from my fair value are a 4.1% discount (CEN) and a 13.0% premium (Mercury). The Mercury premium is not sufficient to make me sell up though. I rather like the fact that of late when Mercury has had a good year it has not been so good and Contact and vica versa. Holding both seems to have given me a natural hedge against fluctuating values in the electricity market.

SNOOPY

[Snoopy]

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 Year	CEN Normalised eps	MCY Normalised eps
2009	27.0cps
2010	25.3cps
2011	22.4cps	11.5cps
2012	24.6cps	10.8cps
2013	27.5cps	10.5cps
2014	27.1cps	13.3cps
2015	22.0cps	10.1cps
2016	22.2cps	10.3cps
2017	18.7cps	12.0cps
Multi Year Average	24.1cps	11.2cps

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.

MCY Business Cycle share Price Average Value:

= 11.2c / ( 0.72 x 0.06) = $2.59 (based on a 6% gross desired earnings yield before tax). This is the 'fair value' as published in the adjacent table.

$2.59 x 1.1 = $2.85 (see post 887 MCY thread "FY2016 Gross earnings yield valuation (Part 2)")

[fish]

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.
SI prices for power much lower than NI.
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