Contact in line for profit drop after triple whammy

The power plant at Contact Energy's Otahuhu Power Station in Auckland. Photo / Greg Bowker
The power plant at Contact Energy's Otahuhu Power Station in Auckland. Photo / Greg Bowker

Contact Energy's result is likely to be disappointing, hit by low wholesale power prices, the loss of thousands of customers and the February earthquake in Christchurch.

Forsyth Barr analyst Andrew Harvey-Green said the past financial year had been tough and positives were "few and far between".

The company - 52 per cent owned by Australia's Origin Energy - will report its full-year result on Monday.

Profit was $154.7 million last year and this is forecast to fall to $148.9 million.

Harvey-Green said that while Contact would exceed ebitdaf (earnings before interest, taxation, depreciation, amortisation and financial instruments) guidance of about $430 million, it was the third year earnings had disappointed.

All generators have been hit by low wholesale prices because of full hydro lakes during the past three winters.

"Most of the low earnings are attributable to low wholesale electricity prices, with increased retail competition and the delay in commissioning the two gas-related projects also having an impact," Harvey-Green said.

During the year Contact had commissioned a gas-fired peaker power plant at Stratford and a gas storage facility nearby. It was designed to increase flexibility in Contact's natural gas supply, allowing it to take and store natural gas during off-peak times, such as summer, and use it during times when it is most needed.

He said competition for retail customers remained intense. During the year Contact lost about 17,000 electricity customers and about 3500 gas customers. The prospect of even greater losses after an Electricity Authority campaign to encourage switching would not be felt until this year's results. Contact has increased discounts to customers who pay promptly online in a bid to stem the flow.

Harvey-Green said the February Christchurch earthquake had a more severe impact on Contact than the September 2010 quake. Its LPG reticulation network was disrupted and the earthquake had been a significant factor in low electricity demand during the second half of the financial year.

Contact shares have in the past week been trading below $5 for the first time in seven years.

Harvey-Green said his firm's "accumulate" recommendation took into account the difficult retail market, the impending listing of state-owned enterprise energy companies and generally low wholesale electricity prices.

Contact shares closed up 3c at $5.02 yesterday.

- NZ Herald

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