The electricity sector has attracted a lot of attention in the past couple of weeks, both in the business pages and within the investment community itself. With five companies listed on the market and a combined value of more than $16.5 billion, it is one of the more genuine market sectors we have of any real scale. This makes it much easier to compare and benchmark company performances and results.

Four of the five listed electricity companies reported results during February, with only TrustPower out of sync thanks to a different financial year end date.

Meridian Energy was without a doubt the pick of the bunch, with a better-than-expected result, an increased ordinary dividend, and a bonus special dividend announced.

Mighty River Power missed our forecasts marginally, and downgraded its outlook because of lower rainfall into the Waikato catchment.


Genesis noted that it might be tough to hit expected earnings this year, because of low rainfall and falling oil prices (it has a 31 per cent interest in the Kupe oil and gas field).

If we were to award Meridian an A+ for its result, Mighty River Power and Genesis would each get a solid B, while the only one to flunk in February would be Contact.

Contact Energy's result wasn't that bad. However, Contact's share price was punished for backtracking on previous signals that it would return capital to shareholders, for opening the door to higher-risk overseas projects, and for poorly communicating the logic behind that.

Broadly, shares fit into two groups - income or growth. Income shares operate in mature markets with limited expansion options. They return most of their profits to their owners as dividends. Sectors such as property, utilities and telecommunications usually fit into this group.

Growth shares operate in industries that offer many opportunities for growth. They are higher risk and it is more difficult to predict how they will fare in the future, but they have the potential to do much better, if they get it right.

Growing companies may pay out some of their profits as a dividend, but they usually reinvest most of these funds back into the business. Companies in the healthcare or technology space are often considered growth shares.

All the electricity companies have commented on the lack of growth options in New Zealand as demand remains low. This is reflected in the lack of price increases being pushed through to consumers.

With growth looking hard to come by, they seem quite happy being considered income shares (and very good ones at that), except for Contact. Despite stating clearly that the New Zealand electricity market is mature with limited opportunities, Contact appears determined to find some growth options, so it's going abroad to look for them.


With Contact shares now looking cheaper than the others, they could turn out to be quite a bargain, especially if the recent backlash causes the board to back down on international expansion plans and ramp up the dividend. The company could also surprise us all and articulate a sensible growth opportunity that would justify holding this cash back and taking on further risk.

However, until a coherent plan is presented to the market, expect the company to remain under fire for an imprudent approach to its use of shareholders funds.

Mark Lister is head of private wealth research at Craigs Investment Partners. His disclosure statement is available free under his profile on This column is general in nature and should not be regarded as specific investment advice.