Contact Energy - CEN Chart

[fish]

Currently it would cost Origin 1.3b AU at market prices to buy the other 49% of Contact, and if they have to add 20%+ in premium they have to pay 1.6b AU plus. While Origin could get the funding from current debt facilities, the ROE and ROIC is significantly lower than they need to make such a move given other projects they are involved in.

Origin make about 5-600m AU in profits a year and have to fund nearly 8b in capex requirements for their stake in Australia Pacific LNG, with many expecting that Origin may have to do another capital raising as their debt to equity is at 19% already, compared AGL energy is under 10%, granted though AGL exploration is very small.

Purchasing Contact, which has even higher debt to equity (32%) at a premium, does not make financial sense for Origin at this stage, as it would increase their current debt levels, and lead to a re-rating profile of the price by analysts to higher risk, at a time when they may need to raise more capital anyway.

While from the point of view of retail holders, the price is lower than 1 year ago, Origin could be purchasing shares on market using the creep provision I doubt a full takeover would happen at the moment as it is not the place they can get the best return for their investment dollar

Origin have massive secure cashflow which is likely to increase with them becoming australia,s largest retailer with their recent $3 billion plus takeover of other autralian retailers . They have made over $600 million au in profits last 2 years and this will rapidly increase .They know that interest costs will stay low this year and contact profits could double or triple-just look at wholesale electricity prices . If they take over contact they will have full access to this cash .
They like renewable energy and geothermal in particular . They know contact inside out . They want their cashflow.A takeover is unlikely to significantly reduce their profits in the short-term and will very likely enhance them sooner than later. They will gain more renewable energy credentials which may open more doors.

They have tried 2 previous takeover offers . They have senior staff running contact .

We know they want 100% contact-they currently own 51.9%. Will there ever be a cheaper time to takeover contact?
Never before has the sp looked so cheap compared to future profits

[fish]

I checked origin energy website-they last stated they owned 52.6% contact and underlying profits $680 million au-and expecting rapid growth . They announced a change in their DIP so that investors electing shares instead of cash get a 2.5 % discount for shares . This is one big rapidly growing company with expansion a priority . Taking over contact now with current low interest rates would probably not reduce their profit-it would be good if someone here had the capability and time to see what effect it would have in different scenarios of interest rates and cen profits .
I feel it would be a very safe investment for origin .

[troyvdh]

thanks guys...we all know that CEN is worth more than the current SP...what is sad is that this fact is meaninglyless...and that the future fortunes of CEN will depend upon the opinions held by those in Oz ...

[Silverlight]

Origin have massive secure cashflow which is likely to increase with them becoming australia,s largest retailer with their recent $3 billion plus takeover of other autralian retailers . They have made over $600 million au in profits last 2 years and this will rapidly increase .They know that interest costs will stay low this year and contact profits could double or triple-just look at wholesale electricity prices . If they take over contact they will have full access to this cash .
They like renewable energy and geothermal in particular . They know contact inside out . They want their cashflow.A takeover is unlikely to significantly reduce their profits in the short-term and will very likely enhance them sooner than later. They will gain more renewable energy credentials which may open more doors.

They have tried 2 previous takeover offers . They have senior staff running contact .

We know they want 100% contact-they currently own 51.9%. Will there ever be a cheaper time to takeover contact?
Never before has the sp looked so cheap compared to future profits

Don't want to take this thread too off topic with Origin, while in general I agree Origin profits are forecast to increase to 8-900m in the next few years, their LNG project carries significant risk, and any delays to the timeline, or a cost blowout, like Woodside has faced with Pluto, will mean downgrades to Origin's forecasts, and may lead to a capital raising.

This risk, and the need for Origin to execute on their LNG project, both financially and on time, leads to an unlikely chance of a takeover at the current time.

[ratkin]

thanks guys...we all know that CEN is worth more than the current SP...what is sad is that this fact is meaninglyless...and that the future fortunes of CEN will depend upon the opinions held by those in Oz ...

Ah but do we?

[fish]

thanks guys...we all know that CEN is worth more than the current SP...what is sad is that this fact is meaninglyless...and that the future fortunes of CEN will depend upon the opinions held by those in Oz ...

A big determinant of the sp will be the market value of electricity-this is getting better and better everyday for cen shareholders-over $200 for most nodes at this moment-around 10 times what it was last year . Hydro levels and inflows are very low . Contact is right in developing geothermal-clearly cheaper and more reliable than windpower or new hydro .

[winner69]

Methinks that that H1 ann will see the shareprice take off today and tomorrow .... a good un

[winner69]

Not one usually interested in CEn but a pretty good preso with the announcement

Gaynor won't like all the different types of profits .... EBITDAF and Underlying Earnings and all those sort of things ..... his question what they trying to hide

Fish -- maybe you understand some of those charts better tahn me .... Page 34 I think you have already explained ...... is the one on page 32 good or bad .... and the one about Stratford Peakers has got me truly stuffed

[Hoop]

Those Accumulators around the 1st to 13th pushing the prices around using their fancy tactics I wonder how they feel this morning ...presently 475 down 3c.

[Jaa]

The problem with Contact is its not growing the business through free cash generation. It is growing via issuing new shares as part of the DRP and rights issues. This helps Origin slowly gain a greater % of Contact but that is a minor point as its really a show of weakness.

I almost fell off my chair the other day when I fired up my energy sector spreadsheet to see if $4.76 was as good a price as it looked. In 2 years the share price has gone from $5.56 to $4.75 but Contact's market capitalisation is almost exactly the same, 3.364b today versus 3.312b in Feb 2010. The number of shares has increased from 583m to 706m over the same period.

The earnings per share results tell the story.

• Underlying earnings per share (cents) down to 10.89 from 12.72 previous period and 13.36 in 2009
• Basic and diluted earnings per share (cents) down to 9.70 from 13.50 previous period and 14.71 in 2009