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 Profit Grows as Hydro&nbsp;Flows—Dec&nbsp;21 Op Stats

NEUTRAL
Contact Energy's (CEN) strong run continues with its December 2021 operating performance another record. We calculate&nbsp;CEN's&nbsp;December 2021 EBITDAF was NZ$45m, up +45% on December 2020 and its 1H22 EBITDAF has come in at NZ$322m, up +31% on 1H21. The continued strong performance, aided by favourable wholesale market conditions, has lifted our FY22 EBITDAF forecast +NZ$24m (+4%) to NZ$586m. We also increase our target price +15cps (+1.8%) to NZ$8.20 but retain our NEUTRAL rating given rising interest rates and heightened regulatory/political risk.


What's changed?&nbsp;



Earnings:&nbsp;FY22E/FY23E/FY24E EBITDAF increased +NZ$24m/+NZ$7m/+NZ$4m to NZ$586m/NZ$552m/NZ$592m
Target price:&nbsp;Increased +15cps (+1.8%) to NZ$8.20



Another strong monthly performance


Strong hydro generation volumes of 383GWh (+45% more than December 2020) helped reduce generation costs to NZ$20/MWh, the lowest on record. This&nbsp;combined with a strong lift in electricity net revenue (up +19% to NZ$83/MWh) were the main factors behind CEN delivering December 2021 EBITDAF of NZ$45m, up +NZ$14m (+45%) on December 2020. December 2021 is the 11th out of the past 12 months with EBITDAF ahead of the&nbsp;pcp&nbsp;and the ninth month to produce a record high EBITDAF.


1H22 EBITDAF of NZ$322m a new 1H record


Unsurprisingly, given&nbsp;CEN's&nbsp;strong run of monthly results, we expect CEN to report a record 1H22 EBITDAF result on Monday 14 February of NZ$322m, up +NZ$76m (+31%) on 1H21. Like the December 2021 month, strong hydro generation volumes (up +21% on 1H21) and a significant increase in electricity net revenue (up +20%) are the main drivers of the expected record 1H22 result.


FY22 outlook improves but only modest flow on effects to later years


We have increased our FY22 EBITDAF forecast +NZ$24m (+4.3%) to NZ$586m. Whilst the FY22 step-up is significant, we do not expect the record run of monthly results to continue. Hydro conditions have already turned, with&nbsp;CEN's&nbsp;storage now below average (at ~85% of average), and hydro generation volumes in January 2022 declining accordingly. Our revised EBITDAF forecast is -NZ$43m below the rolling 12-month EBITDAF forecast. Most of the profit increase relates to current wholesale electricity market conditions, hence, we have not changed later forecasts materially. We have, however, increased our FY23 to FY27 dividend forecast +1cps reflecting the strong FY22 result that will flow into future dividend calculations (CEN uses a rolling four year historic performance methodology so investors only benefit from FY22 in FY23 and beyond). The&nbsp;target price increase of +15cps (+1.8%) to NZ$8.20 reflects the short-term operating earnings uplift and modest dividend increase in later years.


Contact Energy: Profit Grows as Hydro Flows—Dec 21 Op Stats