Contact Energy - CEN Chart

[Crackity]

So for those that dont get in at the placement, what will it open at (I assume on the 6th)? Best guesses?

Will people we happy with a 1% instant gain so sell for less than $4.70?

I pick $4.81 - anyone else? Have set up a separate thread for guesses....

[Snoopy]

Projected eps (FY2015): 26.2c

Time to update my FY2015 earnings forecast, given today's news release from Contact.

1/ Take EBITDAF.

$525m

2/ Remove one off profit items.

$0m (nothing material declared)

3/ Remove Depreciation and Amortization

2x $101m = $202m (twice half year figure)

4/ Take off annual interest charge.

$77m (assume same as FY2014)

5/ Calculate tax payable at 28%

$69m

6/ Calculate NPAT (normalised estimate).

=$177m

From this the foreacst earnings per share are:

$177m / 733m = 24.1cps

An 11c interim dividend has already been paid. So it looks like the final dividend will be 13cps, down 2cps on last year.

SNOOPY

[Snoopy]

6/ Calculate NPAT (normalised estimate).

=$177m

From this the forecast earnings per share are:

$177m / 733m = 24.1cps

An 11c interim dividend has already been paid. So it looks like the final dividend will be 13cps, down 2cps on last year.

Year	eps
2008	42.9c
2009	27.0c
2010	25.3c
2011	22.4c
2012	24.6c
2013	27.5c
2014	27.1c

New dividend policy is to pay out 'eps' as 'dps'. Looking at the results from 2008 to date it looks like 2008 is an outlier. Further investigation leads me to believe that this particuarly good year was made possible due to limited capacity on the Cook Strait cable. This cable has now been enhanced and the infrastructure conditions that supported the 2008 result look unlikely to be repeated. So I will drop the 2008 result out of my alternative future scenarios for forecasting purposes.

Average eps (last 6 years): 25.7cps (NPAT)

=> Gross eps = 25.7/0.72= 35.6c

Valuation of CEN based on steady state earnings and an acceptable gross dividend payment rate of 6%

35.6/ 0.06 = $5.94

That is a bit lower than I had before, due to my adjusting earnings downwards for FY2014. It is still well above the $4.65 placement price of today though!

SNOOPY

[IAK]

Rod Oram's thoughts on Tiwai and Origin selling Contact Energy.

http://www.radionz.co.nz/national/pr...tator-rod-oram

[PSE]

New dividend policy is to pay out 'eps' as 'dps'. Looking at the results from 2008 to date it looks like 2008 is an outlier. Further investigation leads me to believe that this particuarly good year was made possible due to limited capacity on the Cook Strait cable. This cable has now been enhanced and the infrastructure conditions that supported the 2008 result look unlikely to be repeated. So I will drop the 2008 result out of my alternative future scenarios for forecasting purposes.

Average eps (last 7 years): 25.4cps (NPAT)

=> Gross eps = 25.4/0.72= 35.3c

Valuation of CEN based on steady state earnings and an acceptacle gross dividend payment rate of 6%

35.3/ 0.06 = $5.88

That is a bit lower than I had before, due to my adjusting earnings downwards for FY2014 and FY2015 coming in below my forecast. It is still well above the $4.65 placement price of today though!

SNOOPY

Like your work snoop.
I would suggest 2008 is an outlier because of the dry year, HVDC upgrade as you mention. At that time New Plymouth power station was running. It has been replaced by peakers but Otahuhu may not be running in a future dry year.
It is I think appropriate to include outliers in your averages as a dry year is something that happens now and then. CEN's portfolio changes and changes to installed generation of other retailers. means maybe not as profitable for CEN.
Losing ORG as majority owner is positive as they have used CEN to test their failed ideas notably SAP.

[PSE]

CEN values SAP at 265 million with a 15 year lifetime, I don't really see how the change to SAP will increase earnings.
At the stations it is just a hinderance because no-one knows where the spares are anymore.

[Snoopy]

Like your work snoop.
I would suggest 2008 is an outlier because of the dry year, HVDC upgrade as you mention. At that time New Plymouth power station was running. It has been replaced by peakers but Otahuhu may not be running in a future dry year.
It is I think appropriate to include outliers in your averages as a dry year is something that happens now and then.

One more thing about FY2008 PSE. That was the last year of cheap Maui gas and those 1990s take or pay prices. Cheap Maui gas isn't coming back!

SNOOPY

[noodles]

New dividend policy is to pay out 'eps' as 'dps'. Looking at the results from 2008 to date it looks like 2008 is an outlier. Further investigation leads me to believe that this particuarly good year was made possible due to limited capacity on the Cook Strait cable. This cable has now been enhanced and the infrastructure conditions that supported the 2008 result look unlikely to be repeated. So I will drop the 2008 result out of my alternative future scenarios for forecasting purposes.

Average eps (last 7 years): 25.4cps (NPAT)

=> Gross eps = 25.4/0.72= 35.3c

Valuation of CEN based on steady state earnings and an acceptacle gross dividend payment rate of 6%

35.3/ 0.06 = $5.88

That is a bit lower than I had before, due to my adjusting earnings downwards for FY2014 and FY2015 coming in below my forecast. It is still well above the $4.65 placement price of today though!

SNOOPY

Snoopy. The dividend policy is as follows:
-Contact has recently concluded that it can support increased distributions to shareholders and as aresult has revised its distribution policy to target an average ordinary dividend equivalent toapproximately 100% of Underlying Earnings after Tax1 (previously 80%)
-In the event that free cash flow exceeds ordinary dividends Contact willmake additional distributions.

Free cash flow for FY15 is estimated as $363m
Underlying Earnings after Tax expected to be approximately $161m

So free cash flows is more than double Underlying earnings. Thus you would conclude that dividends will be a lot more than 100% of NPAT

[BlackPeter]

CEN values SAP at 265 million with a 15 year lifetime, I don't really see how the change to SAP will increase earnings.
At the stations it is just a hinderance because no-one knows where the spares are anymore.

Any story worthwhile telling re CEN and SAP?

In general ... a well configured ERP system won't increase sales, but it can free up lots of resources (to do better things than e.g. counting spares on shelves) and save lots of money ... just by helping the company to be better organised. No waste, no duplicate orders, supplies never running out again - the system can order in real time. It can safe plenty of time, effort and frustration.

On the other hand - a suboptimal installed and configured ERP system can cost a lot of additional money, it is typically not just a multi person decades implementation project, but anything you misconfigured - you pay for that through the nose and throughout the lifetime of the system.

Not sure what your (or CEN's?) frustration is with their ERP system ... but I can't imagine it is SAP's fault. SAP is worldwide market leader in these systems. Given your statements it sounds like there are problems ... maybe some CIO who wanted to save a handful of dollars for the consultant?

Companies like 3M, 7-eleven, BASF, BP, Siemens, Daimler Benz, Lufthansa (to name just a few) use SAP ERP systems with lots of success. Can't really imagine that minnows like CEN would add that many additional challenges - maybe they are too small?

[Snoopy]

CEN values SAP at 265 million with a 15 year lifetime, I don't really see how the change to SAP will increase earnings.
At the stations it is just a hinderance because no-one knows where the spares are anymore.

SAP is the new IT management platform for Contact. But I think as well as being used for in house asset management, it is also used as part of the customer retail system. I think the aim was to replace a whole lot of disparate legacy systems with one. Perhaps the earnings increase will come from that side of the implementation?

SNOOPY