Contact Energy picked to thrive

Last updated 07:19 20/02/2013

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Contact Energy is "comfortable" with market forecasts of full June year operating profits up to $525 million and says customers can expect "stable to slightly rising" prices in coming years.

But one analyst expected another big step up in earnings for the Wellington-based power company in the following financial year.

That would reflect the cheaper power from the nearly completed $800m Te Mihi geothermal power station near Taupo, where up to 700 people are working.

Contact has ruled out further new power stations for now, given low demand for electricity.

It is also looking at the future of its two combined cycle gas-fired power stations, one in Taranaki, the other in Auckland, with its focus on the Otahuhu plant.

Generation could be cut back or the plants closed in future, because buying gas to generate electricity has been a loss-maker for the company.

Contact yesterday reported a bottom-line half year profit of $88m, up more than 29 per cent on the same period last year.

Higher rainfall in the South Island meant more hydro generation replaced more expensive thermal generation. Contact was able to cut its thermal generation and buy more power from the spot market while prices were lower.

Operating earnings for the six months to December were $253m, up 9.5 per cent, almost exactly in line with analysts' forecasts.

The company will pay a dividend of 11c a share on March 26.

Contact Energy shares rose 17c to $5.25 yesterday.

Market forecast of about $520m in operating earnings for the full financial year would be a modest rise from last year's $509m.

Chief executive Dennis Barnes said: "I'm not uncomfortable with that" forecast.

Forsyth Barr analyst Andrew Harvey-Green said the half-year profit for Contact was very good.

"It was good to see the step up in earnings in the first half. That's encouraging for investors," he said.

Conditions were not "too tough, but not perfect either" so profits were being driven up by changes made to the underlying business, rather than the impact of wholesale electricity market prices.

The second half of the year should be "reasonably solid" for Contact. Harvey-Green said the completion of Te Mihi geothermal station in the middle of this calendar year would give Contact a boost in the next financial year and beyond.

"It will cause a step change in earnings again," Harvey-Green said, with power produced at a lower cost from the new station.

Earnings could rise perhaps "15 per cent to 20 per cent" as a result and that could lead to a higher dividend or some other form of payout. Fairfax NZ

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- Taranaki Daily News

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