Contact investors set for bigger pay day
Power company changes dividend policy
Contact Energy’s high number of individual “mum and dad” investors can expect to see improved payouts thanks to a change in the power generator and retailer’s dividend policy.
The company, in releasing its firsthalf result, said its portfolio of longlife renewable generation assets, supported by a “robust” balance sheet, provided enough confidence for the board to change the distribution policy to a payout ratio of 100 per cent of operating free cash flow, up from 80 to 90 per cent previously.
The change will see the 2019 dividend target increased to 39 cents per share, compared to 32cps for 2018.
In line with the new policy, the board approved an interim dividend of 16 cents per share, up from its previous interim dividend of 13 cents.
According to Contact’s latest annual report, the company has around 52,000 individual shareholders who have holdings of 5000 shares or less, representing 10 per cent of its stock.
In its result, Contact said last year’s gas shortages and favourable powergenerating conditions combined to drive its first-half earnings higher over the first half to December 31.
The company’s ebitdaf shot up by 28 per cent, or $61 million to $278m over the six months to December.
The sale of AGS and the Rockgas LPG business boosted the company’s net profit to $276m for the six months, from $58m a year earlier.
When gas supply was affected by outages at the Pohokura field, Contact supported the market by accessing gas and offering additional thermal generation — above contracted sales — to meet wholesale demand.
Craigs Investment Partners analyst Grant Swanepoel said it was a strong result.
“They managed to take advantage of a gas shortage due to Pohokura outages because they had gas available over October and November so they made good profits during that period,” he said. “They also had fairly consistent inflows into their catchment areas and they had gas available to run their thermal kit when prices were really high, so it was a good performance.” Swanepoel said the dividend forecast of 39 cents for the year suggested Contact expected a solid second half. The new dividend policy, which was telegraphed to the market last year, means Contact now offered a yield of around 6 per cent.
Chief executive Dennis Barnes said it had been a “testing” operating environment over the half that included extended unplanned outages at some of New Zealand’s largest gas fields, and intense competition. “Even with volatile wholesale prices, the retail electricity market remains highly competitive, with heavy discounting and large sign on credits, the predominant tools for acquiring customers,” he said.
Proceeds form the sale of Ahuroa gas storage (AGS) and the sale of the Rockgas LPG business, netted cash proceeds of $438m. Generation ebitdaf increased by $58m to $243m in the six months as production from
hydro generation increased by 25 per cent after a dry first half of 2018 in Contact’s Clutha catchment.
Contact shares last traded at $6.32, up 11 cents. The stock has risen 16 per cent over the past 12 months.