New Zealand Professional Investment Services Firm

Forsyth Barr

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

Contact Energy Giving Up the Lead at the Final Whistle

NEUTRAL
We calculate Contact Energy's&nbsp;(CEN) FY22 EBITDAF to be NZ$535m, a -NZ$18m step down from its strong FY21 performance with CEN falling behind the FY21 comparison&nbsp;in the final month. FY22 was a tale of two halves with 1H22 EBITDAF a record at NZ$322m (+31% on 1H21) while our 2H22 EBITDAF forecast of NZ$213m is -31% on 2H21 and&nbsp;CEN's&nbsp;worst six month period in more than a decade. We have moderated our FY23 forecast -NZ$4m to NZ$540m following the recent sharp decline in near term electricity futures contract prices. Our target price is unchanged at NZ$7.65. NEUTRAL.


What's changed?&nbsp;



Earnings:&nbsp;FY22/FY23/FY24 EBITDAF changed +NZ$2m/-NZ$4m/-NZ$1m to NZ$535m/NZ$540m/NZ$616m respectively



Solid June 2022 operating performance wraps up a weak 2H22&nbsp;


We calculate&nbsp;CEN's&nbsp;June 2022&nbsp;EBITDAF was NZ$51m,&nbsp;down -NZ$28m on its record June 2021 performance&nbsp;but in line with the five-year average. Mass market retail electricity volumes were up +6% on June 2021, due to&nbsp;CEN's&nbsp;focus on growing its customer base, although this has come&nbsp;at the expense of its commercial and industrial customer volumes (with June 2022 volumes down -20% on June 2021).&nbsp;The average retail electricity sales price was up +4% on June 2021, the strongest increase in recent&nbsp;years. CEN has also resumed growing its broadband customer base, with +4k customers added across&nbsp;May and June 2022, a similar growth rate to 2021. Growth had slowed for much of 2022 as CEN struggled to source modems owing to supply chain issues.&nbsp;The June 2022 performance takes&nbsp;CEN's&nbsp;2H22 EBITDAF to NZ$213m and&nbsp;FY22 EBITDAF to&nbsp;NZ$535m. The NZ$109m difference between&nbsp;CEN's&nbsp;1H and 2H EBITDAF figures would be&nbsp;the greatest&nbsp;on record, thanks primarily to the strength of&nbsp;CEN's&nbsp;record 1H22 result, and points to a surprising level of earnings volatility.


Moderate decrease to FY23 forecast a function of the sharp drop in near term electricity prices


We marginally lift our FY22 forecast +NZ$2m to NZ$535m to reflect&nbsp;CEN's&nbsp;June 2022 operating performance. The -NZ$4m (-0.7%)&nbsp; pullback in our FY23 EBITDAF forecast is due to&nbsp;the recent pullback in near term electricity futures contract prices. Whilst hydro inflows have been strong in the past week, CEN started FY23 with below average hydro storage (~73% of average as at 14 July) Future year&nbsp;forecasts are broadly unchanged.


Contact Energy: Giving Up the Lead at the Final Whistle