Contact Energy Limited

CEN Details

Contact Energy Limited (NZX: CEN) is involved in providing electricity, natural gas, and liquefied petroleum gas (LPG), along with broadband services. The electricity is generated through thermal, hydro, and geothermal sources.

Financial Results for FY22

• The company has posted a net profit of NZD182 million, down by NZD5 million from FY21 due to the impact of lower operating earnings (EBITDAF) and higher depreciation, partly nullified by lower interest costs
• EBITDAF reduced to NZD537 million, down by 3% YoY, as higher renewable generation was offset by lower wholesale electricity prices and sales as well as increasing gas and carbon unit costs
• The Board approved a final ordinary dividend of 21 cents per share (imputed by up to 19 cents per share for qualifying shareholders), which takes the annual dividend for FY22 to 35 cents per share

Key Updates

• On 18 October 2022, CEN sent notice of its 2022 annual meeting to its shareholders, which will be held on 16 November 2022.
• On 17 October 2022, CEN released its operating report for September 2022, wherein, the company’s customer business logged mass market electricity and gas sales of 405GWh in September 2022 (September 2021: 389GWh). Contracted Wholesale electricity sales, including the sales to the Customer business, stood at 675GWh (September 2021: 690GWh)

Outlook

The company is witnessing a healthy demand for renewable electricity from forward-thinking customers. In 2022, it bagged long-term power purchase agreements to supply renewable electricity to Oji Fibre, Pan Pac, Genesis Energy and Foodstuffs. CEN has a clear strategy, robust balance sheet as well as opportunities to lead the decarbonisation of NZ economy over the next decade.

Key Risks

The company’s business is exposed to the risks of climate change and pricing. Changes to hydro inflows could affect its renewable generation.

Valuation Methodology: Price/Earnings Per Share Based Relative Valuation (Illustrative)

Stock Recommendation

Over the last one year, the stock has declined by ~10.9%. The stock has made 52-week low-high of NZD6.82-NZD8.42, respectively.

The stock has been valued using P/E multiple-based illustrative relative valuation, and the target price so arrived reflects a fall of low double-digit (in % terms). A slight discount has been applied to P/E Multiple (NTM) (Peer Average), considering the lower operating earnings (EBITDAF) in FY22 and the current trading levels.

Considering the risks associated, it is prudent to liquidate the stock at the current levels.

Hence, a ‘Sell’ rating has been provided on the stock at the closing price of NZD7.300 per share, up by 0.69% as on 28^th October 2022.

Technical Overview:

Daily Price Chart

Markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: Past performance is neither an indicator nor a guarantee of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is October 28, 2022. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Disclaimer

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