Vector metering sale may be a big money-spinner
Lines company offers little detail about potential deal, but expects bids next month
Lines company Vector is keeping its options open on the potential sale of its smart metering operation — a business which analysts see as potentially worth more than $4 billion.
Releasing its full-year result yesterday, Vector said a review of the business was “ongoing”, and chief executive Simon Mackenzie said an information memorandum would go to prospective buyers shortly, with preliminary bids due late next month.
Vector reported flat full-year operating earnings for the 12 months to June 30, and net profit that fell from $194.6 million to $160.9m as it took a $40.2m non-cash impairment on its LPG business.
The NZX-listed company said earnings in its gas trading business were hurt by Saudi Aramco’s higher LPG contract pricing, higher emissions trading scheme costs and the weaker Kiwi dollar.
There had been a 7.4 per cent decrease in the number of 9kg LPG bottle swaps to 629,651.
Mackenzie told the Weekend Herald that Vector’s heavily-regulated pricing was tied to Reserve Bank projections which had put inflation at between 2 and 3 per cent.
Vector would not be able to increase its pricing to account for the actual rate of inflation, around 7 per cent, until 2024.
In the interim, its inability to keep up with the CPI would cost it around $16m per year, Mackenzie said.
Revenue was up 4.7 per cent to $1.24 billion and adjusted earnings before interest, tax, depreciation and amortisation (ebitda) dipped 0.7 per cent to $510m.
The full-year dividend was flat at 16.75 cents per share.
Vector said it would not provide guidance for the 2023 financial year until its interim results.
There was no substantial update on the strategic review of the smart metering business.
Analysts believe the business could be worth more than $4b, based on Brookfield’s purchase of 50 per cent of Australian smart meter operator Intellihub in April.
But when asked if reports that Vector had put a 50 per cent stake in Vector Metering on the block were correct, Mackenzie said that while no decision had been made, “our perspective at the moment is that a partner to help us grow would mostly likely be a
50:50 partnership model. People might propose other things. But as it currently stands, that’s what we see as the most constructive way forward.”
Mackenzie said an information memorandum would go to prospective buyers shortly, followed by a fourweek process that should see preliminary bids in late September.
Vector Metering’s adjusted ebitda increased by 1.2 per cent to $173m, which it said was driven by its advanced meter rollout in Australia — which accounted for 93,000 of the
117,000 new smart meters installed over the year. Mackenzie saw most growth occurring across the Tasman.
According to an AFR report this month, the state government-backed Queensland Investment Corporation has drafted Craigs and JPMorgan for possible due diligence on Vector Metering.
A clutch of other bidders are said to include Singapore-based Keppel Infrastructure, advised by Jarden, Morrison & Co, BlackRock and Morgan Stanley Infrastructure Partners.
In April, Vector revealed it had hired Citi to conduct a “strategic review” of its smart metering business, which collects data on some 2 million customers in Australia and New Zealand.
Following media speculation that the lines company was fielding offers for a 50 per cent stake in the business, Vector said in an August 12 market filing that the “strategic review of the metering business has progressed to the point that Vector has commenced a process inviting proposals for a potential partner to invest in the business alongside Vector”.
At the time the review was announced, Forsyth Barr analysts Andrew Harvey-Green and Mark Robertson said while Vector’s smart metering business has a sum-of-parts value of $3.1b, the recent Intellihub deal implies a market value of around $4.2b — a significant sum that is close to the lines company’s total market capitalisation ($4.7b at Thursday’s close).
While Vector had no update on the strategic review yesterday, it did offer a couple of logistical details.
It said a rollout of 4G modem replacements was now “well underway”, with about 400,000 in New Zealand completed to date.
Vector now has 1.98 million smart meters across Australia and New Zealand, with about a quarter of those across the Tasman.
Vector reiterated its half-year result comments on electric vehicle uptake, saying it had completed a twoyear trial with EV drivers, “designed to find out how EV drivers impact electricity demand patterns and how we can manage that while keeping costs of new infrastructure to a minimum.”