Contact flags ebitdaf drop to $537m
Broker says expectations of the dividend getting through 35c to in excess of 50c
Power generator and retailer Contact Energy reported earnings before interest, tax, depreciation, amortisation and financial instruments (ebitdaf) of $537m for the June year, down 3 per cent on the previous year. Contact's total dividend was 35c, unchanged.
Materials released alongside the result pointed to normalised ebitdaf of $550m in the current financial year, ballooning out to $720m in calendar 2023.
Jarden director of equity research Grant Swanepoel told NZME it was a bold profit projection from one of the country's biggest power companies.
“That [projection] has a lot of implications for the 35c dividend and where that goes to, that's what everyone is looking at,” Swanepoel says. “If operating cash flow holds steady over those periods, that uplift can lead to expectations of the dividend getting through 35c to in excess of 50c.
“It's a good number and the market should be excited. This is a growth company that we have here, not just a low-risk infrastructure company.”
Contact said it would build a new $300m 51.4 megawatt geothermal power station next to its existing Te Huka power station, near Taupō.
Te Huka “Unit 3” would be the latest investment commitment into Contact's world-class geothermal development pipeline after Tauhara.
Once both stations were operational, they would produce clean, low carbon, renewable electricity 24/7, Contact says.
The combined investment would increase Contact's renewable electricity generation by 25 per cent from what is produced today and increase New Zealand's total renewable electricity supply by over 5 per cent on average per year.
In its result, Contact said lower operating earnings and higher depreciation drove its net profit down by $5m, or 3 per cent, to $182m.
The decline was partially offset by lower interest costs reflecting the capitalisation of interest to major growth capital projects, lower tax on earnings and favourable movements to the fair value of financial instruments against the prior year.
Chief executive Mike Fuge said it was a “solid” financial performance despite “unpredictable and volatile” trading conditions.
“This unpredictability has been compounded by a combination of global energy supply and security concerns, exacerbated by the impact of Russia's invasion of Ukraine, with subsequent unprecedented increases in international energy prices, including coal, which has also coincided with a reduction in gas output from the domestic gas market.”
Contact, along with Meridian Energy, are the main suppliers of power to the Rio Tinto majority-owned Tiwai Point aluminium smelter.
Rio had previously advised that it planned to close the plant late in 2024.
Contact said Rio was looking to continue operating its unique low carbon smelter at Tiwai Point beyond 2024 and had announced it has begun exploring potential pathways with electricity generators.
“Contact has been approached by Rio, and we will constructively engage,” Fuge said. “It's still early days, but we are encouraged that the smelter's owner recognises the renewable advantages of our electricity system and Contact supports their engagement approach with key local stakeholders.”
Meridian and Contact have entered into a “swaption” and a contract for difference.
The two financial contracts provide Meridian with additional portfolio flexibility and are for a two-year period starting from January 2023.
Contact runs the Clyde Dam on Lake Dunstan and has extensive geothermal capacity in the central North Island. It has the Taranaki Combined Cycle Power Station, which has two fast-start gas turbine peaking units.
Shares in Contact last traded at $7.86, up 15c.