Contact Energy - CEN Chart

[Snoopy]

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

You could be right Noodles. But if you are paying out free cash flows to your shareholders over and above fully imputed dividends, aren't you just giving shareholders what is in effect their own capital back, except with a tax bill attached? I read the bit you had emboldened as a suggestion that share buybacks might be on the cards in the future.

SNOOPY

[PSE]

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

What is certain is that 265million was spent on SAP so it is recorded as this on the books.
It is not really useful but a hinderance to the people on site (1/4 of the company), I know for a fact its not going to get better for these people at least.
Retail is much bigger and potentially more useful there have been issues there as well.
http://www.zdnet.com/article/contact...r-sap-rollout/
Any potential benefits would come from the retail side but I am not as confident as Dennis Barnes about seeing a reduction in costs sufficient to cover the expenditure.
This is because the implementation was botched, the business plan was not thought through but rather rolled out to see if it would work by the majority shareholder.

[PSE]

I am not against replacing old IT platforms, but my experience working in CEN at the time SAP was rolled out means I know it will not benefit the generation side and leads me to suspect the retail side may also have ongoing issues.
That's right blackpete it may be great for all those businesses but CEN is too small and simple, it is absolutely the implementation I take issue with.
Not the right tool for the job and not the right people getting it done.
If Siemens spends 265m on SAP I can see that the price is small relative to the size of the business and their scale makes the costs smaller relative to the benefits. CEN is only a $3.6 billion dollar company and in this context the expenditure is high.

[noodles]

You could be right Noodles. But if you are paying out free cash flows to your shareholders over and above fully imputed dividends, aren't you just giving shareholders what is in effect their own capital back, except with a tax bill attached? I read the bit you had emboldened as a suggestion that share buybacks might be on the cards in the future.

SNOOPY

Well I think they used up all their imputation credits in the recent special dividend. So yes, either a buy back or partial imputation. They were not explicit.

[Snoopy]

Well I think they used up all their imputation credits in the recent special dividend. So yes, either a buy back or partial imputation. They were not explicit.

A buy back would with 'excess cashflows' would be more tax efficient for shareholders. A non-imputed extra dividend would look better in the business page where company yields are quoted daily. The problem is giving shareholders their own capital back, taxing it and calling it an extra dividend is not a long term sustainable policy. Unless that is Contact start revaluing their dams upwards again every few years, like MRP does. If they did that, then new capital could indeed materialize out of thin air.

Origin had a policy of not revaluing the generation assets every few years. I actually prefer this because the alternative is the following rather dishonest pricing loop logic.

1/ Revalue assets to market.
2/ Note that after revaluation your return on assets in not acceptable.
3/ Put up prices to get an acceptable return on assets.
4/ Price increases now increase underlying value of assets
5/ Go back to step 1

Certain political parties in this country believe extra regulations on the gentailers are needed to overcome such circular logic. Best not to annoy them I think.

SNOOPY

[tim23]

$4.88 my guess to open.

[Joshuatree]

I guess no one has received a firm allocation or scale back confirmation today.Will hopefully need to find some cash ;take a few profits.Mel recovered from strongly from re 8-9c down to only 3c by days end.

[Omega]

Well I think they used up all their imputation credits in the recent special dividend. So yes, either a buy back or partial imputation. They were not explicit.

FY2014 Annual report states $226m of IC's available and even after the special dividend there would still be a significant surplus of IC's (circa $60m-$70m) but a fair chunk of that is likely to be lost with the shareholders change unless they've been able to mitigate it with timing of tax payments and ICA date of 31 March being different to CEN's balance date .

[sb9]

Good points noodles and snoopy.

I think it's positive that Origin are out of this. Asx listing should be good for the stock as well along with 100% dividend payout policy.

In the short term the so might dampen and depending what they announce at FY results time, it should be back to mid $5 at least.

Just look at the recent block sale of NZR by Chevron to Z, the sale was at $2.32 I think and price didn't go below $2.52 or around that mark for a while.

So, in my opinion for such chunk of stake, they've to sell at a discount to find suitable buyers. This might depress sp in the short term, but will recover eventually once bargain hunters pile in.

[Joshuatree]

[



Just look at the recent block sale of NZR by Chevron to Z, the sale was at $2.32 I think and price didn't go below $2.52 or around that mark for a while.
in.[/QUOTE]

Small correction sb9 .The sale of NZR was to us through Craigs in my case anyway @ $2.32 plus commission. Z just bought the Caltex operations and hopefully the regulators will give it the nod. but i get your drift though. Can aussies claim franking credits on CEN like we can imp credits?