Contact Energy - CEN Chart

[Aaron]

Curious re your buy in to Contact Lizard. Good value atm?, expecting a tide of maturing bonds looking for a home ? or something else ? cheers JT

I would also be interested in your reasons for buying CEN Lizard as you are a well respected poster on this site. if you care to share.

[Snoopy]

No worries here at all snoopy .
Only 2 weeks to go before the end of june and the trend will be broken for the 2013 year and hereafter we should see the reversal continue .
I am looking forward to a big divi in September.

I have to admit I am not exactly worried either fish. All trends eventually end and if you just look at the NPAT figure you will see this has been on the up since FY2010.

However NPAT trends do not tell the story for long term investors, because a significant number of new shares have been issued over the last five years. The earnings per share trend is not quite as positive:

FY2008: $247.4m / 576.6m = 42.9cps
FY2009: $158.7m / 587.9m = 27.0cps
FY2010: $152.9m / 604.9m = 25.3cps
FY2011: $155.9m / 695.1m = 22.4cps
FY2012: $177.1m/ 718.7m = 24.6cps

SNOOPY

[Lizard]

I would also be interested in your reasons for buying CEN Lizard as you are a well respected poster on this site. if you care to share.

Sorry, I only just saw this and previous from Joshuatree.

The main reason I haven't posted any thoughts on CEN is because I am pretty busy right now, so my analysis is a bit light-weight at this stage and I don't particularly want to influence others with it.

Since you ask, below are my initial thoughts that have made me buy a small parcel (I often buy small parcels to force myself to follow a stock more closely!).

• The capex cycle should have peaked and will be more cash for dividends
• I think this will remain a dividend driven market for a bit longer
• Their assets seem more conservatively valued than MRP and Meridian at first look
• My initial valuation says $5.87 - $6.18
• A large part of the NZX50 may be energy stocks, so it would be good to understand them better!

I should probably still try and find stats on relative energy capacity of each electricity company and their respective cost profile. I also have a general belief that electricity shares should be less volatile in a possible downturn, but I should probably check history on that one too.

[percy]

If and when you analyse this sector,would you please try and figure out who is making/losing money on the "electricity futures market"?
Trust power for example sold a lot more power than they generated, last time I looked at them.Do any of them employ Nick Leeston?

[Joshuatree]

Thanks Lizard and others appreciate it. For what its worth Craigs have a buy on it with Target of $5.91. If a USA correction is coming CEN could be a reasonably safe place to be.

[Newman]

Thanks Lizard and others appreciate it. For what its worth Craigs have a buy on it with Target of $5.91. If a USA crash is coming CEN could be a reasonably safe place to be.

Contacts is on track of reducing capital spending, which would help to increase dividend. It announced $25 m asset disposal today. Cash is the king in difficult times.

[Arbroath]

Sorry, I only just saw this and previous from Joshuatree.

The main reason I haven't posted any thoughts on CEN is because I am pretty busy right now, so my analysis is a bit light-weight at this stage and I don't particularly want to influence others with it.

Since you ask, below are my initial thoughts that have made me buy a small parcel (I often buy small parcels to force myself to follow a stock more closely!).

• The capex cycle should have peaked and will be more cash for dividends
• I think this will remain a dividend driven market for a bit longer
• Their assets seem more conservatively valued than MRP and Meridian at first look
• My initial valuation says $5.87 - $6.18
• A large part of the NZX50 may be energy stocks, so it would be good to understand them better!

I should probably still try and find stats on relative energy capacity of each electricity company and their respective cost profile. I also have a general belief that electricity shares should be less volatile in a possible downturn, but I should probably check history on that one too.

If I can add my 2 cents - the capex cycle has peaked for Contact in a big way and the next 5 years should see higher dividend payouts, and possibly a higher payout ratio also. Given the global search for yield is only having a breather IMO Contact could be a $7 stock again in a couple of years with higher dividends so maybe $2 capital growth combined with a 25-30c dividend makes for a company worth owning.

[fish]

If I can add my 2 cents - the capex cycle has peaked for Contact in a big way and the next 5 years should see higher dividend payouts, and possibly a higher payout ratio also. Given the global search for yield is only having a breather IMO Contact could be a $7 stock again in a couple of years with higher dividends so maybe $2 capital growth combined with a 25-30c dividend makes for a company worth owning.

All the stars are coming into line-cook strait cable upgrade,dry year for north island-so far,more geothermal,gas storage,more high value industrial customers,nz manufacturing increasing.
Other forces are currently shaping the market-hopefully your estimation of a couple of years will see the sp increase-anywhere from $6 to $9 is my guess

[Snoopy]

The capex cycle has peaked for Contact in a big way and the next 5 years should see higher dividend payouts, and possibly a higher payout ratio also. Given the global search for yield is only having a breather IMO Contact could be a $7 stock again in a couple of years with higher dividends so maybe $2 capital growth combined with a 25-30c dividend makes for a company worth owning.

You are right about that capex peaking Arbroath. I went back over ten years (from FY2003 to FY2012) and here is the annual capex spending over that time:

$62.1m, $44.1m, $67.9m, $138.7m, $149.2m, $282.0m, $488.8m, $468.7m, $529.5m, $583.0m

That comes to a grand total of $2.814b over ten years.

The depreciation figures over that same period make for an interesting comparison:

$100.6m, $114.2m, $94.3m, $133.2m, $136.9m, $143.2m, $164.8m, $155.4m, $155.1m, $176.9m

You can see in those early years from 2003, capex was significantly lower than depreciation. One interpretation of that was that Contact were not keeping their maintenance up to allow dividends to be higher. IIRC there were even calls for CEN to return capital to shareholders. Then just a few years later CEN was so strapped for cash, they created a dividend reinvestment scheme where shareholders defaulted to buying more shares with what would have been their dividend cash payouts.

Total CEN depreciation over the ten years I followed was $1,374.7m.

On paper the fact that capital expenditure has been more than twice depreciation recorded over the same period is great news. However, such a simple analysis ignores the fact that inflation over the life of a power station means it would incur a far greater cost to rebuild a plant damaged by a natural disaster, than any disparaged 'book value' of generation assets.

SNOOPY

[Lizard]

On paper the fact that capital expenditure has been more than twice depreciation recorded over the same period is great news. However, such a simple analysis ignores the fact that inflation over the life of a power station means it would incur a far greater cost to rebuild a plany damaged by a natural disaster, than any disparaged 'book value' of generation assets.

Looking at valuation of assets was interesting - MRP assets seem to be re-valued annually and, provided the value increase outstrips depreciation, the accumulated depreciation appears to get written back to zero. CEN, on the other hand, seems to be working off 2004 book values for assets held at that time and at cost thereafter for additions and improvements. If I have read it correctly, it therefore seems that the values placed on CEN assets are likely to be more conservative.