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

<h2>Contact Energy<br>Momentum Powers Record Month&nbsp;— June 2021 Operating Performance</h2>
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<p><strong>OUTPERFORM</strong></p>
<p>We calculate Contact Energy (CEN) produced a record monthly EBITDAF of NZ$78m in June 2021, +NZ$11m better than the previous record set in June 2014. Strong hydro generation, being long generation, and higher commercial pricing were the main drivers of the record result. We lift our FY21 EBITDAF forecast +NZ$10m to NZ$553m. We have also increased our dividend forecast +1cps, ahead of&nbsp;CEN's&nbsp;FY21 dividend guidance of 35cps, to 36cps. We lift our target price +NZ$0.10 to NZ$8.70 and reiterate our OUTPERFORM rating.</p>
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<h3>What's changed?&nbsp;</h3>
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<li><strong>Earnings</strong>:&nbsp;FY21/FY22/FY23 EBITDAF increased +NZ$10m/+NZ$8m/+NZ$15m to NZ$553m/NZ$555m/NZ$549m</li>
<li><strong>Dividends</strong>:&nbsp;FY21/FY22/FY23 dividends&nbsp;increase +1.0cps to 36.0cps/37.5cps/39.0cps respectively</li>
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<h3>Strong hydro generation and commercial price momentum push June 2021 EBITDAF to record high</h3>
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<p>CEN's&nbsp;record year continued in June 2021, with EBITDAF of NZ$78m a continuation of the earnings momentum seen in 2H21. There were two key drivers of the strong result. 1) CEN was long generation, in part due to hydro generation +5% above average and in part due to deliberate positioning by CEN&nbsp;cutting back on commercial sales volumes. Being long generation during the high wholesale electricity priced period has been particularly beneficial for CEN. 2) Whilst commercial volumes have trended down, commercial prices continue to trend upwards as contracts on pre-2018 prices roll off and are replaced with materially higher prices. The average June 2021&nbsp;commercial price of NZ$126/MWh&nbsp;was +36% higher than the&nbsp;pcp.&nbsp;</p>
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<h3>Additional gas a modest positive and signs the extreme gas shortage is easing</h3>
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<p>CEN will be receiving an additional 2.55PJ of gas in 2022 from its gas supplier OMV. The additional gas from the Maui field will&nbsp;only partially offset&nbsp;the reduced&nbsp;Pohokura&nbsp;gas take but&nbsp;will enable CEN to produce ~250GWh of electricity in 2022.</p>
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<h3>Lifting earnings and dividend forecast</h3>
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<div id="m_6930230894537065080i6924">
<p>We have increased our FY21 EBITDAF forecast +NZ$10m to NZ$553m. We have also modestly increased our medium-term forecasts with commercial price increases the main driver. FY22 also benefits from hydro storage, starting ~70GWh above average, and from assumed additional gas generation. Over recent months our earnings outlook has increased sufficiently that we believe CEN will pay an FY21 dividend +1cps ahead of its 35cps guidance. A dividend of 36cps is in the middle of CEN's rolling four year, free cash flow dividend policy range.&nbsp;</p>
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<div><strong>Andrew Harvey-Green</strong></div>
<div><a href="mailto:andrew.harvey-green@forsythbarr.co.nz" target="_blank" rel="noopener">andrew.harvey-green@<wbr>forsythbarr.co.nz</a></div>
<div>+64 4 495 8185</div>
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<div><strong>Mark Robertson</strong></div>
<div><a href="mailto:mark.robertson@forsythbarr.co.nz" target="_blank" rel="noopener">mark.robertson@forsythbarr.co.<wbr>nz</a></div>
<div>+64 4 495 5264</div>
</div>
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Contact Energy Momentum Powers Record Month&nbsp;— June 2021 Operating Performance

OUTPERFORM
We calculate Contact Energy (CEN) produced a record monthly EBITDAF of NZ$78m in June 2021, +NZ$11m better than the previous record set in June 2014. Strong hydro generation, being long generation, and higher commercial pricing were the main drivers of the record result. We lift our FY21 EBITDAF forecast +NZ$10m to NZ$553m. We have also increased our dividend forecast +1cps, ahead of&nbsp;CEN's&nbsp;FY21 dividend guidance of 35cps, to 36cps. We lift our target price +NZ$0.10 to NZ$8.70 and reiterate our OUTPERFORM rating.


What's changed?&nbsp;



Earnings:&nbsp;FY21/FY22/FY23 EBITDAF increased +NZ$10m/+NZ$8m/+NZ$15m to NZ$553m/NZ$555m/NZ$549m
Dividends:&nbsp;FY21/FY22/FY23 dividends&nbsp;increase +1.0cps to 36.0cps/37.5cps/39.0cps respectively



Strong hydro generation and commercial price momentum push June 2021 EBITDAF to record high


CEN's&nbsp;record year continued in June 2021, with EBITDAF of NZ$78m a continuation of the earnings momentum seen in 2H21. There were two key drivers of the strong result. 1) CEN was long generation, in part due to hydro generation +5% above average and in part due to deliberate positioning by CEN&nbsp;cutting back on commercial sales volumes. Being long generation during the high wholesale electricity priced period has been particularly beneficial for CEN. 2) Whilst commercial volumes have trended down, commercial prices continue to trend upwards as contracts on pre-2018 prices roll off and are replaced with materially higher prices. The average June 2021&nbsp;commercial price of NZ$126/MWh&nbsp;was +36% higher than the&nbsp;pcp.&nbsp;


Additional gas a modest positive and signs the extreme gas shortage is easing


CEN will be receiving an additional 2.55PJ of gas in 2022 from its gas supplier OMV. The additional gas from the Maui field will&nbsp;only partially offset&nbsp;the reduced&nbsp;Pohokura&nbsp;gas take but&nbsp;will enable CEN to produce ~250GWh of electricity in 2022.


Lifting earnings and dividend forecast


We have increased our FY21 EBITDAF forecast +NZ$10m to NZ$553m. We have also modestly increased our medium-term forecasts with commercial price increases the main driver. FY22 also benefits from hydro storage, starting ~70GWh above average, and from assumed additional gas generation. Over recent months our earnings outlook has increased sufficiently that we believe CEN will pay an FY21 dividend +1cps ahead of its 35cps guidance. A dividend of 36cps is in the middle of CEN's rolling four year, free cash flow dividend policy range.&nbsp;



Andrew Harvey-Green
andrew.harvey-green@forsythbarr.co.nz
+64 4 495 8185





Mark Robertson
mark.robertson@forsythbarr.co.nz
+64 4 495 5264



Contact Energy: Momentum Powers Record Month — June 2021 Operating Performance