Contact Energy has said goodbye to Australian shareholder Origin and signalled a revision of its dividend policy which will be welcomed by shareholders.

The company will now target returning 100 per cent of underlying earnings after tax, up from 80 per cent.

Analysts at Morningstar say strong free cash flow is likely given the lack of growth and capital spending and special dividends are flagged for any excess cash above its normal distributions.

In guidance given at the time of the Origin sale underlying net profit after tax will be $161 million for the year, softer than expected but free cash flow of $363 million is in line with forecasts.


The near-term earnings forecast declines in line with management guidance.

Morningstar forecasts low to mid-single-digit earnings per share growth for the five years ending in 2019.

"We are more circumspect on Contact's longer-term profitability given the looming threat of cheaper solar and battery technology."

In the long term the analysts say they expect only low-double digit returns on new investment, slightly above Contact's cost of capital.

They say the retention of Dennis Barnes as chief executive was "pleasing" and should provide stability.

Contact is also listing on the Australian sharemarket, the ASX.

"The dual listing is positive for shareholders, providing additional liquidity and greater exposure to institutional shareholders."

Contact shares, which were at $5.02 when the company went into a trading halt before the Origin sale, yesterday closed up 16c at $5.22


Early spring

Share prices in gentailers Contact and the former state-owned enterprises Mighty River Power, Meridian and Genesis, have been under pressure over winter but Hamilton Hinden Greene's James Smalley says they are set for a pre-spring uplift.

The uncertainty over supply to the Tiwai Pt aluminium smelter, Meridian's call on shareholders to buy their second instalment of the stock in May and global unease over Greece and China had been factors in pushing down share prices.

But these have now largely passed, Smalley says. The other tailwind for the gentailers is their yield appeal.

The likelihood of even sharper interest rate cuts mean that's looking even better.

"These businesses are generating great amounts of cash which they can then distribute. From a yield perspective for most of them you're looking at 7 per cent or 8 per cent and consider that against a fixed interest of below 4 per cent for a one-year term deposit soon that looks pretty attractive," Smalley says.

Mighty River Power shares closed down 6c at $2.69, Meridian down 0.5c at $2.285 and Genesis down 3c at $1.70.

Few vacancies

The tourism sector is being bolstered by the falling dollar, the still strong Chinese and Australian markets and a resurgent number of visitors from the United States. Auckland hotels are enjoying a stellar time and last year collectively recording the highest annual occupancy rate in New Zealand.

Tourism Industry Association New Zealand shows hotels in Auckland enjoyed 82.2 per cent occupancy, up 3.4 points on 2013 and well above the national occupancy rate of 75.7 per cent allowing the average daily rate (across all star grades) to jump to $147, up $7 on the previous year, generating total revenue of $456 million, up $25 million on 2013.

Listed sector operator Tourism Holdings has improved earnings across its businesses by selling excess fleet capacity and focusing on margins, and in April lifted its profit guidance for a third time to between $19.5 million and $20 million for the year ended June 30, from $11.1 million the previous year.

The company also said it will target a dividend payout ratio of 75 per cent to 90 per cent of net profit.

Tourism Holdings shares closed up 8c at $2.05.

Convention centre update a sure bet

Minister Steven Joyce (left) and SkyCity CEO Nigel Morrison ponder the NZ International Convention Centre project. Photo / Greg Bowker
Minister Steven Joyce (left) and SkyCity CEO Nigel Morrison ponder the NZ International Convention Centre project. Photo / Greg Bowker

SkyCity Entertainment Group's annual result emerges next Wednesday morning, revealing the performance of one of the larger and more interesting NZX-listed stocks.

An update on the controversial NZ International Convention Centre from chief executive Nigel Morrison is a sure bet, but is it also worth wagering that the possibility of separating its property and entertainment assets could be raised?

This is a relatively unlikely gamble because SkyCity has enough on its plate right now, gobbling up virtually an entire Auckland city block with the convention centre. But it sure is an interesting idea, most certainly something for hungry investors to watch in the longer term.

The business has revealed how it has been pondering the value of dividing its hotel, food and beverage, and casino assets from its substantial real estate operations into two stand-alone businesses. Property is hot and SkyCity has big potential growth in the pipeline so what about that on its own?

"No current plans to separate property assets, but will continue to monitor and evaluate options for purposes of funding and maximising shareholder value," SkyCity revealed in an investor presentation where it highlighted the value of its real estate assets.

As a straight property business, without the casino, hotel, tourism, restaurant and bar operations, and based on a market value of $1.39 billion of property assets, SkyCity would rank fourth among NZ's largest listed property companies.

"Current market value of land and buildings [is] estimated at $1.39 billion. Value of land and buildings represents 43 per cent of SkyCity's enterprise value of $3.25 billion," its presentation said.

Avaricious instos would have a big appetite for any potential SkyCity operational divorce. Yum, yum, for that play so over to you, Nigel.