Contact Energy - CEN Chart [Archive] - Page 9

Snoopy

22-02-2021, 06:25 PM

Thank you for all your recent analysis. I don't understand it all, but I do understand I have made a 54% profit from buying and selling Contact over the past 2 years, but a 4% loss over the past month, and as this cow is no longer giving me any milk (wrong metaphor I know) I have just taken her out of my herd. When it looks like she's come into calf again, I might bring her back in again.

Ok , I will have another go at trying to make this easier to understand. There is no shame in 'not understanding it all' because this is an extremely difficult topic.

I decided the electricity sector would be a core part of my investment portfolio because:

1/ everyone needs electricity through good times and bad, and therefore companies like Contract should continue to pay good divies.
2/ being a 'boring utility' it would be easy to analyse.

I was right on only the first of those points!

The basic problem is that for really long lived assets that increase in value, like the renewable energy power stations, following conventional accounting practices and standards doesn't really work. Evaluating these companies requires thinking outside normal valuation techniques. In general depreciation is a way of making sure you account for the fact that at some point in the future, you will have to replace your machinery. Depreciation reduces your profits but also allows for more cashflow to come in under the radar of the taxman. That cashflow can be used to rebuild your plant and equipment as it wears out. The problem is following the tax rules tells you that everything is wearing out (depreciating) faster than it really is.

The other 'fly in the analysis' factor is that not only do these long lived renewable assets not wear out as accounting rules suggest they should. They actually increase in value. This is because all electricity is priced in accordance with the marginal cost of building a new power station. Construction costs for large engineering projects have a habit of rocketing up faster than inflation. This isn't great for those building a brand new power station. But it is great news for those power station owners who have existing renewable power stations. Because those existing stations suddenly become worth a lot more. And this increase in value is not speculative or empty because it is accompanied by a consummate increase in the price paid for historically costed renewable energy, which is now bought at present day market price levels. The problem then becomes how do you compensate, to get a 'true value' of your investment from the numbers spat out by accounting standard compliant income statements?

I had a good debate with Ferg on this thread a few months back (see post 1800 on this thread for Ferg's alternative viewpoint). In the end we agreed to disagree, although in fairness I don't believe there is any one correct way to solve this problem.

My own method is initially to follow all the accounting rules as though they are representative and correct. Doing this underreports an investors real return, because it removes the unimputed portion of investors dividends from their return. But taking unimputed capital away from a company's books also reduces the book value of assets . In this process, the value of present value power is subtracted from the historical cost book value of power stations. Over time, as Ferg pointed out, this method tends to reduce the book value of all company owned power stations, (because most of the power stations are historic) to zero. This is nonsensical. So to counter this effect, I introduce a periodic revaluation of power stations that reflects their current earning capacity. No money is required to boost the earning capacity of historic power stations as the market price of power goes up. So I term my revalued capital to be 'thin air capital', because the incremental asset value of the historic renewable power stations increases from nothing.

For those who find the notion of 'thin air capital' ridiculous, I would point out in my defence that I only needed to invent the concept because the accounting rules that exist today do not provide for realistic depreciation of long life renewable power generation assets. The debate on how to account for unimputed profits is a live one, even though I am happy with my own solution to the issue.

Coming back to your own analogy Jiggs, your herd of (power) cows never stopped producing. It is just that some wildcat farmer offered to buy your cows for a silly price then withdrew that offer that made it look like you had lost money. If a fool offers to buy your cows for a lot more than they are worth, you can kick yourself for not taking advantage of the situation. But by not accepting at least you still have your milk (power) producing cows (except in this instance you don't because you sold them).

SNOOPY

tomm

23-02-2021, 11:51 AM

A question : If I sell now, do I still receive the divident?

777

23-02-2021, 12:07 PM

A question : If I sell now, do I still receive the divident?

Tomm it dividend not divident.

Every dividend announcement has the dates that the shares trade ex dividend. The dates are also on the NZX site.

https://www.nzx.com/markets/NZSX/dividends

tomm

23-02-2021, 12:29 PM

Tomm it dividend not divident.

Every dividend announcement has the dates that the shares trade ex dividend. The dates are also on the NZX site.
Very appreciated .

HKG2301

23-02-2021, 12:35 PM

A question : If I sell now, do I still receive the divident?

Distribution Amount NZD 0.15588235
Ex Date Friday, March12, 2021
Record Date Monday, March 15, 2021
Payment Date Tuesday, March 30, 2021

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/CEN/367580/340296.pdf

Joshuatree

23-02-2021, 12:48 PM

A question : If I sell now, do I still receive the divident?

Love the new word though, be in the next dictionary update .
Divident - noun- A dividend is evident, transparent and imminent.

Snoopy

23-02-2021, 08:10 PM

Love the new word though, be in the next dictionary update .
Divident - noun- A dividend is evident, transparent and imminent.

I thought the word referred to a reduced value dividend, as CEN announced their upcoming dividend would be reduced..

divident 'a dividend with a dent (in value)'

So tomm's wording looks absolutely correct to me!

SNOOPY

Snoopy

23-02-2021, 08:29 PM

On the chart (https://invst.ly/twhkm), CEN daily SP is basing now at a historical support, the 200MA and the 61.% FIB retrace from Covid-low to the insane spike-high recently. It is and remains in a severe short term down-trend.

It is interesting that Contact closed at $6.96 today, below the nominal retail offer price of $7. If you look in the offer document, the alternative price setting mechanism is the lower of $7 or:

"a 2.5% discount to the volume weighted average market price of the Shares traded on the NZX Main Board over the five business day period prior to and including the Closing Date, rounded down to the nearest cent."

A 2.5% discount on $7 is $6.83

If the share price stays down, we 'small investors' might get one over on the big guys (for once).

SNOOPY

FatTed

23-02-2021, 10:15 PM

HKG2301

23-02-2021, 11:11 PM

It is interesting that Contact closed at $6.96 today, below the nominal retail offer price of $7. If you look in the offer document, the alternative price setting mechanism is the lower of $%7 or:

"a 2.5% discount to the volume weighted average market price of the Shares traded on the NZX Main Board over the five business day period prior to and including the Closing Date, rounded down to the nearest cent."

A 2.5% discount on $7 is $6.83

If the share price stays down, we 'small investors' might get one over on the big guys (for once).

SNOOPY

A very good point.

The Closing Date for the Retail Offer being the end of next week, 5 Mar 21 (I had to check) for those existing shareholders at the record date of 12 Feb 21.

So for those thinking of adding up to $50k's worth of CEN to your existing holding to offset the equity raise dilution, you have to decide (guess?) whether to buy at these lower market prices or keep your powder dry, hoping this dip continues into next week.

Either way, worth keeping an eye on.

https://www.nzx.com/announcements/367760

Ohdoyle

23-02-2021, 11:18 PM

HKG2301

23-02-2021, 11:44 PM

I think we can expect it to oversubscribed amd scaled down. No actual evidence of this but given the sheer amount of cash floating around, combined with the low returns on term deposits, I'd consider anything but being significantly scaled quite disappointing.

That may well depend on where this dip bottoms as we run into next week. If the SP looks to be averaging lower than $7.18 next week, I expect the offer will attract a lot more interest!

But as the crystal ball is still cloudy on that front (US futures' plummet notwithstanding), I guess there's a third option to consider: buy at market if it continues lower this week and consider applying for the Retail Offer next week as well!

What are the sums for equity dilution as a result of the $400M raise, about 7.5%...?

Ohdoyle

24-02-2021, 12:08 AM

Surely this index rebalancing isn't as simple as it's being made out in the media - I can see a scenario where an ETF fund actually might need to buy more CEN rather than to sell

We need to take account of the actual price of the underlying share when calculating the index weighting of that share and since CEN shareprice has fallen from $10.75 to $7.11 in the last six weeks, any fund holding this share over that period would have seen the value of those CEN shares that they own fall by 35% and hence the relative weighting of CEN in that fund's index would also have fallen by the same 35%. This may mean that CEN's weighting in that ETF has already self-corrected (or even over corrected!).

Or am I misunderstanding the way these ETF make their buy/sell decisions?

I have been looking into this myself past few days.

The formula by which the maximum weighting is set is on standard and poors website. The formula requires to much data input and to much hard math for me to calculate it, but would be very interested if someone had managed to do it or can find a recent article referencing the possible figures.

What CEN and MEL medians daily volume traded over the last 6 months will affect the final weighting. Ironically all the volatility caused by BlackRock may increase the weighting.

As of 19 February ICLN and ICRG index funds are still buying shares (slow and steady ).

Exactly how much they will need to sell off will determine the March/ April direction. But two things I note :

1 Alot if traders seem to be poised to buy back in to CEN and MEL after selling out in the recent highs.

2. The dividend yield is starting to look attractive again.( I realise the 10 year bond rate is rising too).

Overall I'm picking this selloff wont be as bad as predicted and we may be nearing the bottom. Of course exactly what the bottom is will be hard to predict as it always is.

Waltzing

24-02-2021, 07:49 AM

"I realise the 10 year bond rate is rising too"

while the T10 is a factor it seems to be short term in nature and then other forces start to drive stock prices and its effect falls away.

The crazy highs recently show how unpredictable the market price discovery is at the moment.

Id be interested in Detect Inspector SNOOPS views on the sector at present as his in depth detailed work in this sector is almost second to none.

Snoopy

24-02-2021, 10:02 AM

I have reworked my model based on just the last four years of operations.

1/ The 'Scenario 'Dividend Per Share' and 'Scenario Earnings Per Share' columns (from my post 1978) represent a prediction of an ongoing dividend of 90% of free cash flow being paid into the foreseeable future. The FY2021 forecast, under the same policy of paying out 80-100% of free cashflow, is 35cps. This is somewhat less than my four forecast scenarios where dividends range between 41cps and 47cps. However these scenarios reflect a future where Tauhara is operational which should provide an incremental boost to Contact's profitability. I also note that in the current forecast year, the proposed dividend of 35cps is a figure towards the lower end of the 80-100% cashflow payment range. I therefore do not consider the modelled dividend payout to be unrepresentatively high, once Tauhara is up and running.
2/ The (A) - (B) difference column, if negative, represents the amount of the projected dividend not covered by imputation credits. This is important, because a dividend paid without imputation credits is in accounting terms, equivalent to giving shareholders their own capital back (equal to the amount of the unimputed dividend) complete with a tax bill. This is generally bad for investors. It is necessary to make a negative adjustment to account for any expected tax to be paid on the unimputed dividend component (Column (D).
3/ The capital component of the dividend is the portion of shareholder equity being returned to shareholders. This will need to be removed from the dividend return calculation. Because to pay it is to return to shareholders money on the balance sheet that they already have, so it isn't a shareholder benefit.
4/ The unimputed component tax bill column, represents the income tax charged on share capital that is expected to be paid by the shareholder. A 28% tax rate is assumed. Note that if the (A)-(B) difference were to be positive then there would be no extra tax bill. That's because in such a year, the dividend would be 'fully imputed'.
5/ The final 'Difference Column' represents the 'effective' dividend per share, adjusted for any extra tax obligation from paying tax on unimputed distributions.

Scenario Basis Financial Yeareps (A)Scenario dps (B)Difference (A)-(B)Divie Capital Component (C)Unimputed Tax Bill (D)Difference (B)-(C)-(D)

201721.5c43.0c-21.5c21.5c6.0c15.5c

201821.1c42.0c-20.9c20.9c5.9c15.2c

201926.6c47.0c-20.4c20.4c5.7c20.9c

202020.6c41.0c-20.4c20.4c5.7c14.9c

Total89.8c (E)173.0c (F)66.5c

Business Cycle Imputation Rate (E)/(F)51.91%

.

The expected average dividend per year, net of tax is therefore: 66.5 / 4 = 16.6cps (net)

Using a tax rate of 28c this is equivalent to a gross income of: 16.6cps /(1-0.28) = 23.1c

Now we come to a critical point in this analysis - the choosing of an indicative interest rate that allows us to value Contact on the basis of being an ongoing income stream. I have previously used a figure of 5.5%. But that was in a climate of investment interest rates of some 3.5%. Interest rates have fallen by at least 200 basis points since then. OTOH the Tiwai Point aluminium smelter is likely on a three year wind down closing path. The power market is consequently in a state of flux as whether an energy intensive replacement industry like hydrogen fuel production, will arrive. If not, there is work to be done, by Transpower, to ensure Contact will be able to extricate the consequential surplus energy from their Clutha River power stations at Clyde and Roxburgh. The 'transmission north' constraints need to be relieved. There is also uncertainty as to how Tauhara will feed into the mix of competitors' new wind farms that are due to come on line within a similar construction timeframe.

To balance these competing factors, I have assessed that a gross return of 4.5% is an acceptable return from a shareholder perspective, investing in Contact Energy's assets.

Dividends can only be imputed to the extent that tax credits are being and have been generated. The bulk of the Contact tax credits on the books came about in FY2016, because of $204m of impairments net of tax relating to the closure of the Otahuhu Power Station, an assessment that the Taheke Geothermal field is unlikely to be developed in the foreseeable future (from a June 2016 perspective) and a 'write down' in the value of inventory gas. I have calculated above that $63m of those tax credits have been used up, which means that $97m - $63m = $34m are yet to materialise. That means there are probably two years worth of 'Superimputed dividends' for Contact Energy shareholders to come. What value of superimputation is appropriate? I am going with the average that I calculated in the early part (post 1799) of this valuation exercise of 71.64% as a figure that is now appropriate for Contact Energy.

If we assume that a business cycle investment 'gross return' of 4.5% is required, then this equates to a CEN share price of:

23.1c /0.045 = $5.13

So $5.13 is therefore 'fair value'.

Readers should note that $5.13 represents 'business cycle neutral' fair value. We could argue that we are currently at the top of a low interest rate inspired valuation cycle. My rule of thumb would suggest a 'top of cycle' value some 20% higher than my calculated fair value.

$5.13 x 1.2 = $6.16

Contact Energy is trading at $7.49 as I write this post. This technique would suggest that Contact Energy is now 22% overvalued (above fair valuation), not unexpected given the plunge in interest rates of late is probably worrying yield investors, and not out of line with the broad overvaluation of the NZX as a whole.

But does a 'capitalised dividend valuation' give the full picture? Maybe not!

I have reread past dividend paying intentions and compared that to what actually happened. When Contact had their '100% of Free Operating Cashflow' policy, dividends never quite reached that level. That is because the policy was based on 'averaged hydrological conditions'. If the inflows were above average (which they were in FY2019), then the dividend was not increased. Keeping this in mind, I have created a third possible iteration of future events where dividends are capped at 41cps (This reflects the period after Tauhara has been commissioned remember). Despite the dividend reduction, I expect this iteration will show increased returns to shareholders. This is because the unimputed portion of the dividend will be reduced. The way I have done my analysis, unimputed portions of dividends reduce shareholder returns, because of the extra tax incurred by such payments.

I continue to use my model based on just the last four years of operations.

1/ The 'Scenario 'Dividend Per Share' and 'Scenario Earnings Per Share' columns (from my post 1978) represent a prediction of an ongoing dividend of 90% of free cash flow being paid into the foreseeable future, but now capped at 41cps. The FY2021 forecast, under the same policy of paying out 80-100% of free cashflow, is 35cps. This is somewhat less than my four forecast scenarios where dividends are 41cps. However these scenarios reflect a future where Tauhara is operational which should provide an incremental boost to Contact's profitability. I also note that in the current forecast year, the proposed dividend of 35cps is a figure towards the lower end of the 80-100% cashflow payment range. I therefore do not consider the modelled dividend payout to be unrepresentatively high, once Tauhara is up and running.
2/ The (A) - (B) difference column, if negative, represents the amount of the projected dividend not covered by imputation credits. This is important, because a dividend paid without imputation credits is in accounting terms, equivalent to giving shareholders their own capital back (equal to the amount of the unimputed dividend) complete with a tax bill. This is generally bad for investors. It is necessary to make a negative adjustment to account for any expected tax to be paid on the unimputed dividend component (Column (D).
3/ The capital component of the dividend is the portion of shareholder equity being returned to shareholders. This will need to be removed from the dividend return calculation. Because to pay it is to return to shareholders money on the balance sheet that they already have, so it isn't a shareholder benefit.
4/ The unimputed component tax bill column, represents the income tax charged on share capital that is expected to be paid by the shareholder. A 28% tax rate is assumed. Note that if the (A)-(B) difference were to be positive then there would be no extra tax bill. That's because in such a year, the dividend would be 'fully imputed'.
5/ The final 'Difference Column' represents the 'effective' dividend per share, adjusted for any extra tax obligation from paying tax on unimputed distributions.

Scenario Basis Financial Yeareps (A)Scenario dps (B)Difference (A)-(B)Divie Capital Component (C)Unimputed Tax Bill (D)Difference (B)-(C)-(D)

201722.2c41.0c-18.8c18.8c5.3c16.9c

201821.9c41.0c-19.1c19.1c5.3c16.6c

201927.3c41.0c-13.7c13.7c3.8c23.5c

202021.4c41.0c-19.6c19.6c5.5c15.9c

Total89.8c (E)164.0c (F)72.9c

Business Cycle Imputation Rate (E)/(F)54.76%

.

The expected average dividend per year, net of tax is therefore: 72.9 / 4 = 18.2cps (net)

Using a tax rate of 28c this is equivalent to a gross income of: 18.2cps /(1-0.28) = 25.3c

Now we come to a critical point in this analysis - the choosing of an indicative interest rate that allows us to value Contact on the basis of being an ongoing income stream. I have previously used a figure of 5.5%. But that was in a climate of investment interest rates of some 3.5%. Interest rates have fallen by at least 200 basis points since then. OTOH the Tiwai Point aluminium smelter is likely on a three year wind down closing path. The power market is consequently in a state of flux as whether an energy intensive replacement industry like hydrogen fuel production, will arrive. If not, there is work to be done, by Transpower, to ensure Contact will be able to extricate the consequential surplus energy from their Clutha River power stations at Clyde and Roxburgh. The 'transmission north' constraints need to be relieved. There is also uncertainty as to how Tauhara will feed into the mix of competitors' new wind farms that are due to come on line within a similar construction timeframe.

To balance these competing factors, I have assessed that a gross return of 4.5% is an acceptable return from a shareholder perspective, investing in Contact Energy's assets.

Dividends can only be imputed to the extent that tax credits are being and have been generated. The bulk of the Contact tax credits on the books came about in FY2016, because of $204m of impairments net of tax relating to the closure of the Otahuhu Power Station, an assessment that the Taheke Geothermal field is unlikely to be developed in the foreseeable future (from a June 2016 perspective) and a 'write down' in the value of inventory gas. I have calculated above that $63m of those tax credits have been used up (post 1806) , which means that $97m - $63m = $34m are yet to materialise. That means there are probably two years worth of 'Superimputed dividends' for Contact Energy shareholders to come. What value of superimputation is appropriate? I am going with the average that I calculated in the early part (post 1799) of this valuation exercise of 71.64% as a figure that is now appropriate for Contact Energy. Nevertheless my forecast period is from 2023 onwards. By that time I have to assume all of those remaining $34m of tax credits that are funding 'superimputed dividends' to be used up. That means I expect future tax credits to come out of this historical shadow and revert to reflecting operational performance.

If we assume that a business cycle investment 'gross return' of 4.5% is required, then this equates to a CEN share price of:

25.3c /0.045 = $5.62

So $5.62 is therefore 'fair value'. However, this is fair value in the future, three years hence when Tauhara is up and operating. We need to discount this back using an appropriate 'time value of money' factor. This I calculated in post 1978 to be 0.8763.

0.8763 x $5.62 = $4.92

Readers should note that $4.92 represents 'business cycle neutral' fair value. We could argue that we are currently, keeping in mind the increasing ten year bond rate, descending from the top of a low interest rate inspired valuation cycle. My rule of thumb would suggest a 'top of cycle' value some 20% higher than my calculated fair value. However, given we may have passed the interest rate low, I am reducing my interest rate cycle premium from 20% down to 15%

$4.92 x 1.15 = $5.66

Contact Energy is trading at $6.77 as I write this post. This technique would suggest that Contact Energy is now still 17% overvalued (above fair valuation), but not out of line with the broad overvaluation of the NZX as a whole.

But does a 'capitalised dividend valuation' give the full picture? This is a 'no growth valuation', so maybe not!

SNOOPY

tomm

24-02-2021, 10:25 AM

mondograss

24-02-2021, 11:14 AM

Valuation is Valuation of a business but for the Markets , it is up to the Markets to decide how much it's share is worth but base on the valuation it is being told and the growing, performing of the business. You will never expect or can write a conclusion price on any share.

But you can conclude a price that informs your sale/purchase decisions. Which is where I find Snoopys analysis so useful.

Snoopy

24-02-2021, 11:17 AM

Valuation is Valuation of a business but for the Markets , it is up to the Markets to decide how much it's share is worth but base on the valuation it is being told and the growing, performing of the business. You will never expect or can write a conclusion price on any share.

If that is true, how do you value a business that is not listed on the market?

SNOOPY

tomm

24-02-2021, 11:33 AM

If that is true, how do you value a business that is not listed on the market?

SNOOPY
Assets + Turn over , also can take the probability of the business's future into consideration.

Snoopy

24-02-2021, 12:46 PM

Assets + Turn over , also can take the probability of the business's future into consideration.

Good answer.

The reason I make my valuations detailed is to show what assumptions are behind such a valuation. A market has many more players than one. And all of those players may have different views. The buying and selling between market players is then what determines the market price. So when I call the valuation of CEN to be $6.04, verses are market p[rice of $7.01, you should not take this to mean I am declaring Mr Market to be wrong. You should instead take it to mean that Mr Market is using a different valuation technique than I, or possibly using the same technique, but with different input assumptions.

Personally I invest for dividend yield. So I like to think of $6.04 being the 'dividend yield value' and the difference between that and the market price of $7.01, being 97c as the 'growth premium'. As an investor, you would have to consider whether that growth premium of 97c is justified. One investment technique I use is to buy shares on an income basis only. That means that any growth I do get comes for free. Correspondingly if the company does not grow, then I haven't wasted any money paying a growth premium. But buying a utility type share rarely throws up such a discount. So my next exercise is to try and make a calculated guess at what I think the growth premium should be.

SNOOPY

.....who holds CEN shares, bought at a price significantly less than $6.04!

dreamcatcher

24-02-2021, 01:06 PM

.....who holds CEN shares, bought at a price significantly less than $6.04!

I do Sir and far lower still......:p many thanks for all your work here and elsewhere Snoopy.

Entrep

24-02-2021, 01:32 PM

Can't give you more rep, but amazing content from you on this thread Snoopy

tomm

24-02-2021, 01:41 PM

BlackPeter

24-02-2021, 02:17 PM

I am unsure how TILT share price would be with the input as mentioned by Snoopy.
Due to the trend of renewable energy , we will see a bit of down play but soon enought the Sp will be rocket again after the revaluation so how they call.

Tilt clearly is part of the green bubble.

https://www.nzherald.co.nz/business/green-bubble-warnings-grow-as-money-pours-into-renewable-stocks/MQIXE4KUWNIT6VKOEPFXI2LOQQ/ (paywalled)

As the enthusiasm for climate-friendly investing hits fever pitch, analysts warn that investors are pumping cash into anything that looks "green" — sending valuations of eco-friendly companies into the stratosphere and fanning fears of a bubble.

How long this bubble will continue to inflate before it burst is everyone's best guess :), however - bursting it will.

Lego_Man

24-02-2021, 03:21 PM

Imploding now. Blackrock haven't even sold a buck yet.

Snoopy

24-02-2021, 04:04 PM

Imploding now. Blackrock haven't even sold a buck yet.

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/CEN/368135/341087.pdf

Well according to the notice above they just sold 7,600 shares. That was after buying gazillions though. I could make neither head nor tail of the announcement until I remembered about the share placement to institutions. Blackrock weren't offered any. So when other institutions took up their holdings, that meant Blackrock got diluted below substantial holder level.

SNOOPY

Snoopy

24-02-2021, 04:20 PM

If we assume that a business cycle investment 'gross return' of 4.5% is required, then this equates to a CEN share price of:

23.6c /0.045 = $5.25

So $5.25 is therefore 'fair value'.

Readers should note that $5.25 represents 'business cycle neutral' fair value. We could argue that we are currently, keeping in mind the increasing ten year bond rate, descending from the top of a low interest rate inspired valuation cycle. My rule of thumb would suggest a 'top of cycle' value some 20% higher than my calculated fair value. However, given we may have passed the interest rate low, I am reducing my interest rate cycle premium from 20% down to 15%

$5.25 x 1.15 = $6.04

Contact Energy is trading at $7.01 as I write this post. This technique would suggest that Contact Energy is now 16% overvalued (above fair valuation), but not out of line with the broad overvaluation of the NZX as a whole.

But does a 'capitalised dividend valuation' give the full picture? This is a 'no growth valuation', so maybe not!

To clarify, I am modelling here a no growth valuation after Tauhara is built. I am not saying no growth from today, as the current cash issue presentation (attached to the half year report), forecasts that this $580m project from here on in (funded by $400m of new equity and $180m of new debt) will produce a substantial uplift in EBITDA.

If you look back at my post 1978, I have taken the forecast $85m EBITDA uplift as incremental cashflow of $85m. I have subtracted suitable incremental depreciation of $14m and incremental interest charges of $8m. Assuming a tax rate of 28%, I can calculate an incremental net profit after tax of:

(1-0.28)x($85m-$14m-$8m)= $45m or $45m/805m = 5.6cps

That is a significant part of the 17.5cps modelled earnings total. To be more precise the forecast increase is:

5.6c / ( 17.5c -5.6c) = +47%

That sounds high. But those are Contact's own numbers, not mine.

SNOOPY

HKG2301

24-02-2021, 04:27 PM

That may well depend on where this dip bottoms as we run into next week. If the SP looks to be averaging lower than $7.18 next week, I expect the offer will attract a lot more interest!

But as the crystal ball is still cloudy on that front (US futures' plummet notwithstanding), I guess there's a third option to consider: buy at market if it continues lower this week and consider applying for the Retail Offer next week as well!

What are the sums for equity dilution as a result of the $400M raise, about 7.5%...?

OK, money where my mouth is. Just topped up my 7.5% dilution's-worth at $6.82.

If it stays at these levels (or lower) I'll add more through the Retail Offer next week.

Goes without saying, I'm happy to accumulate at these levels...

Entrep

24-02-2021, 06:45 PM

Imploding now. Blackrock haven't even sold a buck yet.

Sorry can you explain the blackrock thing a bit more?

HKG2301

25-02-2021, 06:34 AM

Snoopy

25-02-2021, 02:45 PM

I want to wrap up this topic by focussing on what a pointy headed techno-splurge into the minutiae of power station operation at Contact has to do with investment returns for CEN shareholders. Fortunately, for those who are already lost, you don't need to know anything about the minutiae of operating geothermal power stations to appreciate this point.

I have previously brought up the idea of 'thin air capital' increasing the value of certain power companies above what seems to be sensible when measured in PE or earnings yield terms. How effective 'thin air capital' is at raising the value of an investment depends on the value of the base (existing) assets it is bouncing off. If the value of the base generation assets is less (and that is what a power station operating at a lower capacity utilisation factor means), then it follows that the incremental effect of a fixed amount of 'thin air capital' is worth more (in relative terms, which is what matters in a comparison like this). It appears that for its geothermal assets at least, Contact Energy is operating those assets at a lower efficiency than that I have modelled. That means the 'thin air capital' appreciation factor will be greater than the one I calculated. And that means that the underlying fair value value of Contact shares will be slightly greater than the value which I calculated previously ($7.42).

Redoing the calculation (for original, refer to my post 1883):

0.94 x 226MW / (0.514x784MW + 0.84x452MW) = 0.271

So my multiplication factor to allow for 'thin air capital' changes from 1.257 to 1.271

My new Contact Energy 'fair value' share price valuation is now: $5.90 x 1.271 = $7.50 (up from $7.42 before)

Not a huge difference. It doesn't change any of my conclusions from previous posts. But the extra 8cps is worth having nonetheless.

Contact Energy HydroStation Generation CapacityNotes
Contact Energy GeothermalStation Generation Capacity
Notes

Clyde464MWCommissioned FY1992
Ohaaki48MWCommissioned FY1989

[/TR]

Roxburgh320MWCommissioned 1956Te Huaka28MWCommissioned FY2010

Wairakei145MWCommissioned 1958, Modified FY2005

Poihipi65MWCommissioned FY1997

Te Mihi166MWCommissioned FY2014

Tauhara152MWTo be Commissioned FY2023

Total784MW

Total604MW

Effective Capacity Factor0.514Effective Capacity Factor0.840 (1)

Total Operationally Adjusted
403MW
Total Operationally Adjusted507MW

Notes

(1) With a new geothermal station, I would expect somewhere near a 94% capacvity utilisation factor. However I have left my overall capacity utilisation factor at 84%, because I expect the capacity utilisation of some of the older geothermal plant to decline.

-----------

Prior to the go button being pushed on Tauhara, I had suggested that Contact had $623m of 'thin air equity capital' to build it.

Debt can be borrowed against this 'thin air capital'. This means the total amount of investment capital (equity and debt) that can be utilised as a result of this 'thin air capital' was:

$623m / 0.58 = $1,074m

We now know the total estimated construction costs are $678m for a 152MW geothermal power station.. So this leaves:

$1,074m - $678m = $396m available for other projects.

This money could construct a new geothermal power station with a generation capacity of:

396/678 x 152MW = 89MW

This represents an incremental earning power on a Tauhara inclusive generation portfolio of:

(89MW x 0.94) / ( 403MW + 507MW ) = 9.2%

From this we can derive an incremental valuation factor of 1.092. This represents the value embedded in Contact Energy over and above fair value that is there to be accessed at any time to build new geothermal power generation assets.

SNOOPY

Snoopy

25-02-2021, 04:17 PM

If we assume that a business cycle investment 'gross return' of 4.5% is required, then this equates to a CEN share price of:

25.3c /0.045 = $5.62

So $5.62 is therefore 'fair value'. However, this is fair value in the future, three years hence when Tauhara is up and operating. We need to discount this back using an appropriate 'time value of money' factor. This I calculated in post 1978 to be 0.8763.

0.8763 x $5.62 = $4.92

Readers should note that $4.92 represents 'business cycle neutral' fair value. We could argue that we are currently, keeping in mind the increasing ten year bond rate, descending from the top of a low interest rate inspired valuation cycle. My rule of thumb would suggest a 'top of cycle' value some 20% higher than my calculated fair value. However, given we may have passed the interest rate low, I am reducing my interest rate cycle premium from 20% down to 15%

$4.92 x 1.15 = $5.66

Contact Energy is trading at $6.77 as I write this post. This technique would suggest that Contact Energy is now still 17% overvalued (above fair valuation), but not out of line with the broad overvaluation of the NZX as a whole.

But does a 'capitalised dividend valuation' give the full picture? This is a 'no growth valuation', so maybe not!

We now know the total estimated construction costs are $678m for a 152MW geothermal power station.. So this leaves:

$1,074m - $678m = $396m available for other projects.

This money could construct a new geothermal power station with a generation capacity of:

396/678 x 152MW = 89MW

This represents an incremental earning power on a Tauhara inclusive generation portfolio of:

(89MW x 0.94) / ( 403MW + 507MW ) = 9.2%

From this we can derive an incremental valuation factor of 1.092. This represents the value embedded in Contact Energy over and above fair value that is there to be accessed at any time to build new geothermal power generation assets.

We can now look beyond the Tauhara project and see how future growth, in the way of 'thin air capital', can be incorporated into my 'Capitalised Dividend' valuation.

$5.66 x 1.092 = $6.18

As I write this, Contact are trading at $6.93. If the share price purchase plan uses that as a base price, then I should be able to pick up shares at:

0.975 x $6.93 = $6.76

That value gap is closing and as the countdown to Tauhara begins my 'time value of money discount' will unwind giving the following 'fair value' price for CEN next year (ending 31st July 2021):

$6.18 x 1.045 = $6.46

And in two years time (actually 16 months from writing this post):

$6.46 x 1.045 = $6.75

The share price has come back a long way from the super heady prices of January. That is good for investors wanting to buy in. Yet even with a few healthy dividends thrown in on the way to 2023, my calculations are showing that CEN is not cheap, even at $6.76. So do I buy into this capital raise or not? Hmmm, decisions, decisions.

SNOOPY

Entrep

25-02-2021, 05:14 PM

Snoopy

26-02-2021, 10:25 AM

Contact need more capital

What’s that all about

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/CEN/367533/340251.pdf

It is all about building Tauhara, a new flagship 'state of the art' geothermal power station that nevertheless plugs into the 'old' Wairakei field. But did they really need more capital? As a supporter of the 'thin air capital' theory, I would say 'no'. Contact themselves say in Slide 5 of the 'Capital Raising Presentation' the building of Tauhara is:

"Supported by a $400m equity raise and a new distribution policy."

That last underlined bit shouldn't be forgotten. 'Thin Air Capital' is, in essence, capitalising the improved earnings performance from long lived renewable energy generation assets. Capitalised earnings as an asset can be borrowed against. But debt ratings are more often measured against interest coverage ratios like EBITDA/I. So perhaps there is no need for Contact to capitalise this 'thin air capital' as rival gentailer Mercury Energy does?

Actual improved earnings can either be paid out as higher dividends or kept within the company for internal company reinvestment. Contact's new dividend distribution policy is no longer to pay out 100% of operating cashflow. That means they are retaining cashflow that has come from the improved earnings of these long lived assets. To this extent they are counting on the benefits of 'thin air capital', even if they don't recognise the concomitant 'strengthened capital position' that results from any underlying 'permanent incremental increase in earnings'.

This is the reason that I have removed the 'thin air capital' attributable to Tauhara from my valuation modelling of CEN (factor down from 1.271 to 1.092, see post 2032), even though Contact themselves have not banked it. For a power generating company, a generation asset is valued by discounting back the present value all future cashflows associated with that asset. So 'borrowing against assets' is really 'borrowing against future earnings' for a gentailer. I see borrowing against just one year's earnings (as limited by the snapshot 'EBITDA/I' borrowing covenant) as a similar borrowing process. Albeit one years earnings are a far more volatile borrowing stick manifestation of mean earnings for what is, in underlying terms, the same thing: borrowing against an asset. In this sense Contact Energy have recognised their 'thin air capital' on the income statement, if not on the balance sheet.

Back to the original question: "Did Contact Energy need more capital?" My answer is no they needed , and have, more earnings to borrow against instead. Unless that is you see 'gentailer earnings' and 'gentailer capital' as alternative manifestations of the same thing. My discussion in the above paragraphs gives weight to that argument.

SNOOPY

Snoopy

27-02-2021, 04:52 PM

I understand what you are saying 100% and that a return of capital via unimputed dividends is not income, and that then results in a real cash outflow for the shareholder. I agree a share buyback would make more sense. And in the absence of a share buyback, then debt reduction would also be beneficial. Unimputed dividends are not an efficient use of capital, nor are they tax efficient. There is no absolutely debate from me on that.

However, I guess I was looking at it from the angle that if we are going to exclude the unimputed cash given to the shareholder, then the payment of tax from those same proceeds should also be excluded. Why? Assuming returning capital via unimputed dividends does not impact upon future profitability, P/E ratio or SP, then the overall personal and enterprise value should remain unaffected. The funding of tax payments on imputed dividends is independent of all of these factors. Therefore by excluding the unimputed dividend from the valuation, then the tax payment on the unimputed dividend should also be excluded. Yes unimputed dividends erode NTA but, in my opinion, NTA is the floor price for a share valuation and is not highly correlated to the share price or its movements for entities such as MEL. Such entities have a low ratio of capex to depreciation which generates FCF, and the non-retention of this cash erodes the NTA but not the share price or the shareholder wealth. Accordingly, the tax on the unimputed dividend should have no bearing on the overall share, or enterprise, valuation under this train of thought.

Maybe others are not making the adjustments you are making to their calculations, hence they are comfortable with the SP being higher than your calculations. I'm merely exploring other avenues of thought, not saying any method is more or less accurate.

This message from 1st September 2020 is still haunting me

I like to think of my investments according to the Buffett model. A business has an intrinsic rate of return. on shareholder equity (ROE). The more equity the business has, the higher number you can use to multiply that intrinsic rate of return by. Consequently as shareholder equity goes up, profit goes up. However, I am realistic enough to admit that in the real world, with certain kinds of businesses in particular, like gentailers with long lived assets, these 'Buffett rules' are weakly correlated with what actually happens.

Ferg said
"Assuming returning capital via unimputed dividends does not impact upon future profitability, P/E ratio or SP, then the overall personal and enterprise value should remain unaffected."

Now, I think I know what Ferg is getting at here. If Contact pays shareholders a large dividend, that doesn't mean the power stations will slow down until they recover their equity and then return to full generating capability again later. I am fairly sure the earnings capability of power stations has no connection to year to year fluctuations in shareholder capital. Take out a bit of share capital, imputed or unimputed, to pay a dividend and the company carries on operating as normal. In this sense, taking an unimputed dividend out of Contact or an imputed dividend out of a company will make no difference to operating performance. Both imputed and unimputed dividends make a positive difference to a shareholder's bank account. So what justification do I have for counting, in my modelling, an unimputed dividend as a 'negative event' for shareholders?

Ferg said
"overall personal and enterprise value should remain unaffected."

Enterprise Value = Market Capitalisation +Total Debt−Cash on hand

Clearly if a dividend is paid, then cash on hand is reduced. So paying a dividend must affect enterprise value, by definition. I feel like I am dancing on the head of a pin by pointing this out. But sometimes words do matter. Although I do note that Ferg said "personal and enterprise value" which maybe absolves him from the strict definition of 'Enterprise Value' that I rolled out above.

It looks like the method I use, subtracting unimputed dividends directly from shareholder equity and not counting the unimputed dividend as a benefit, will in time reduce a gentailer shareholder's funds to zero. However, in practice, this will not happen. Because in tandem with this, I am using the concept of 'thin air capital' to recapitalise balance sheets to recognise the capitalised value of the increasing ability of long lived generation assets to earn more cash in the future as power prices rise.

Right now I remain unconvinced there is a better way than mine to deal with what is a mismatch between accounting rules for depreciation and the cashflow in the form of dividends from those same assets being way more than is needed to cover the depreciation. Perhaps depreciation of long life power generation assets needs to be banned? That is what happened to rental houses depreciation claimed by landlords

SNOOPY

winner69

27-02-2021, 05:00 PM

Excuse my ignorance but what’s this ‘thin air capital’

Something to do with crypto?

Ferg

27-02-2021, 05:38 PM

Excuse my ignorance but what’s this ‘thin air capital’

Something to do with crypto?
It almost exists in the same alternate universe but not quite. Snoopy is referring to asset revaluations. The sum of a series of forecast future cash flows from an asset divided by periodic discount rates gives a net present value. NPV less book value gives the asset revaluation. Debit Asset, Credit Equity (which Snoopy refers to as capital). Given the increase in equity was made from thin air, snoopy refers to such revaluations as "thin air capital". Given the asset base has increased, it allows the generator to borrow against what Snoopy refers to as thin air capital, when the banks are looking at the future earning capacity. Same thing, different terminology.

FatTed

27-02-2021, 05:57 PM

Hi
Where do I find my Entitlement number for the retail share offer please, I assumed it was on the email sent to me but I cant find it.

Monarch

27-02-2021, 06:07 PM

It is on the email. If you look for a grey bar towards the end of the email, it is written on that.

FatTed

27-02-2021, 10:29 PM

It is on the email. If you look for a grey bar towards the end of the email, it is written on that.

Not on my email, will have to phone them on Monday I guess

Monarch

27-02-2021, 10:36 PM

The title of the email is "Contact Energy Limited - Share Offer" if that helps

FatTed

28-02-2021, 08:04 AM

The title of the email is "Contact Energy Limited - Share Offer" if that helps

To my surprise that did find the email, and that is the only way it appears! no idea why, so thanks for that

Ferg

28-02-2021, 11:49 AM

TLDR: Use FCF?

Hello Snoopy, you are correct in that words do matter and sometimes I don't quite get it right. Sometimes message transmitted <> message received. You were spot on with CEN dividends having no impact on the earnings potential of the hydro schemes. However, I think the "thin air" revaluations offsetting the "reducing to zero" reductio ad absurdum argument I used are two different things, given one has a cash impact and the other is non-cash (**instantly regret this statement and don't want to lose an hour researching it**). Let's park that last sentence.....

The context of "personal and enterprise value" was based on the value of money in the pocket of the shareholder from dividends + the value of the business to that same theoretical shareholder. This was all off the back of your excluding the unimputed dividend from your shareholder value calculations but deducting the tax thereon. Note the previous sentence you quoted was referring to the value to the shareholder; the "enterprise" component includes the value of the business (as measured by the SP in this instance) multiplied by their % ownership. I should have used the word "business" or "shares" and not "enterprise", given the pre-amble refers to the SP, and the value of the business to the shareholder (aka their investment) would be shares x SP. I didn't state that explicitly at the time given I try not to be too wordy, but I now accept it carries the risk of being misinterpreted or misunderstood. That was the intent given the discussion was based around the value to the shareholder. You did pick up on this given you mentioned "personal and enterprise value" was not the same as a strict definition of enterprise value, so let's not get too hung up on that.

Notice also the massive caveat at the start of that sentence "Assuming returning capital via unimputed dividends does not impact upon future profitability".
I am of the opinion that paying dividends does actually impact future profitability and therefore affects total shareholder value (on the basis a share is valued using a price earnings ratio x earnings per share). Lower debt (by not paying unimputed dividends and instead repaying debt) results in less interest costs and higher profitability and by extension a higher EPS. Assuming the same P/E ratio, this gives a higher SP. This change in the SP value would then be compared to the value in the pocket of the investor from the dividend for a nett positive or negative impact based on a bunch of other factors. In other words, it's complicated (*more on this later). You also picked up on this in that the reduction in cash impacts the EV calculation, assuming no change to MC. Edit: on reflection yes C is lower but maybe MC would be higher?

The enterprise valuation method ignores the capital versus debt structure and in theory, and as you touch on in other posts, values the underlying income producing assets (less any associated operating costs of course). The formula EV = MC + D - C is looking through the ownership structure at the underlying assets. By ignoring the capital vs equity components, it is by extension also ignoring any associated payments, being dividends and interest. Taking this one step further, what the recipients of those payments do with those funds is also irrelevant, therefore the tax on unimputed dividends is irrelevant for any shareholders unlucky enough not to be able to offset that income with deductible expenses. That is one pillar of my argument as to why the tax on unimputed dividends should be ignored, assuming you are also ignoring the unimputed dividend.

The second pillar revolved are around the impact on the individual shareholder. The company puts unimputed dividend of $1 into the shareholders pocket. Under my way of thinking, the tax of 30c is paid from the $1 in the pocket and the shareholder received a partial "return of capital" (more on this below) of 70c. Under your method, the tax of 30c is taken from a second pocket. The $1 in the first pocket is ignored, but the 30c taken out of the second pocket is deducted. I view that as inconsistent, despite the fact (and I acknowledge) the tax is paid to an entity outside of the circle of shareholder + entity.

The third pillar is the gentailer is not paying the unimputed dividend from historic equity, they are paying it from FCF that was earned in the relevant year. Accordingly, they are not returning equity, they are distributing unimputed income - which they are able to do ad infinitum assuming nothing fundamentally changes.

You are correct in that there is an imbalance between FCF and tax paid earnings available for imputed dividends given capex is less than depreciation, and often any new significant capex is funded via additional debt (e.g. a new hydro scheme). In short, the FCF method looks through all of the accounting complexities and I expect will give you the answer you seek. Notice this is FCF to the entity, not the shareholder and (4th pillar) the tax on the unimputed dividend is once again irrelevant.

Edit: I think part of the complication arises on depreciation on revalued assets. This results in a lower profit, but is not deductible for tax purposes, hence the mismatch? To your point and it pains me to say this, but maybe depreciation should not be allowed for revalued assets, much like for landlords as you mentioned.

*More on Valuation complications
Clearly, EV is not the same as value to a shareholder given MC is a component of that formula and MC is total shares on issues x SP. Furthermore MC in theory would be Equity plus Future Earning Potential (I made that formula up). Equity would include some components of future earning potential given gentailer asset revaluations include the "thin air capital" to which you refer. And given the SP often exceeds NTA, shareholders have built in additional future earnings potential. IOW, SP = NTA + FEP.

Also, differing valuation methods end up with contradictory results, a bit like: "many hands make light work" versus "too many cooks spoil the broth". For example, using an underlying asset approach would give a value, and the EV method may give the same or a different value - let's assume it never pays a dividend but it still has this value. However, to a shareholder, a share that never pays a dividend (as in never ever in perpetuity), has a theoretical value of zero under the dividend valuation method. The real answer would be somewhere above zero given a) the asset and EV methods would assume a return of capital to the shareholder at some point in the future, discounted for the time they have to wait to get it back and b) a profitable entity should be worth more than zero.

In other words it is complicated and there are many ways to skin a cat. So long as you are clear and consistent in your own thinking, then you are free to choose any valuation method you like. I hope I have demonstrated there is more than one choice, especially given people are subject to confirmation bias and will use whatever method suits their agenda (I am not referring to you, I'm looking at investment bankers and new listings).

P.S. It would be great to thrash over this over a beer or a wine, but I suspect that differing cities and COVID restrictions will put paid to that.

This message from 1st September 2020 is still haunting me

I like to think of my investments according to the Buffett model. A business has an intrinsic rate of return. on shareholder equity (ROE). The more equity the business has, the higher number you can use to multiply that intrinsic rate of return by. Consequently as shareholder equity goes up, profit goes up. However, I am realistic enough to admit that in the real world, with certain kinds of businesses in particular, like gentailers with long lived assets, these 'Buffett rules' are weakly correlated with what actually happens.

Ferg said
"Assuming returning capital via unimputed dividends does not impact upon future profitability, P/E ratio or SP, then the overall personal and enterprise value should remain unaffected."

Now, I think I know what Ferg is getting at here. If Contact pays shareholders a large dividend, that doesn't mean the power stations will slow down until they recover their equity and then return to full generating capability again later. I am fairly sure the earnings capability of power stations has no connection to year to year fluctuations in shareholder capital. Take out a bit of share capital, imputed or unimputed, to pay a dividend and the company carries on operating as normal. In this sense, taking an unimputed dividend out of Contact or an imputed dividend out of a company will make no difference to operating performance. Both imputed and unimputed dividends make a positive difference to a shareholder's bank account. So what justification do I have for counting, in my modelling, an unimputed dividend as a 'negative event' for shareholders?

Ferg said
"overall personal and enterprise value should remain unaffected."

Enterprise Value = Market Capitalisation +Total Debt−Cash on hand

Clearly if a dividend is paid, then cash on hand is reduced. So paying a dividend must affect enterprise value, by definition. I feel like I am dancing on the head of a pin by pointing this out. But sometimes words do matter. Although I do note that Ferg said "personal and enterprise value" which maybe absolves him from the strict definition of 'Enterprise Value' that I rolled out above.

It looks like the method I use, subtracting unimputed dividends directly from shareholder equity and not counting the unimputed dividend as a benefit, will in time reduce a gentailer shareholder's funds to zero. However, in practice, this will not happen. Because in tandem with this, I am using the concept of 'thin air capital' to recapitalise balance sheets to recognise the capitalised value of the increasing ability of long lived generation assets to earn more cash in the future as power prices rise.

Right now I remain unconvinced there is a better way than mine to deal with what is a mismatch between accounting rules for depreciation and the cashflow in the form of dividends from those same assets being way more than is needed to cover the depreciation. Perhaps depreciation of long life power generation assets needs to be banned? That is what happened to rental houses depreciation claimed by landlords

SNOOPY

Ferg

28-02-2021, 12:21 PM

winner69

28-02-2021, 05:03 PM

winner69

28-02-2021, 05:04 PM

Deleted ...got posted twice

But Capitalism without Capital is interesting.

Snoopy

28-02-2021, 07:29 PM

Over an afternoon ale with a mate on a hot afternoon I mentioned this ‘thin air capital’ concept to him.

He’s into financial analysis in a big way ...he got excited and is going to ‘research’ it
:eek2:
I just smiled to myself ...hope he doesn’t spend too much time on it :eek2:

No need to do much research, as the team at Mercury Energy have written the book on how to do it. All their geothermal energy power stations were built using 'thin air capital' mostly generated via the Waikato river system. And despite being government controlled, the state never had to put up a cent to build anything (neither did any other shareholder). It is a fantastic business model.

SNOOPY

Snoopy

28-02-2021, 07:42 PM

Snoopy

28-02-2021, 08:41 PM

Use FCF?

You are correct in that there is an imbalance between FCF and tax paid earnings available for imputed dividends given capex is less than depreciation, and often any new significant capex is funded via additional debt (e.g. a new hydro scheme). In short, the FCF method looks through all of the accounting complexities and I expect will give you the answer you seek. Notice this is FCF to the entity, not the shareholder and (4th pillar) the tax on the unimputed dividend is once again irrelevant.

If I am valuing a company from a 'capitalised dividend valuation' perspective, then I am valuing it from the point of view of the shareholder. In this sense the 'free cashflow' we are concerned about is the dividend, fully imputed, partially imputed or not imputed. Whatever the imputation rate of the dividend, the cash used to pay it comes out of shareholder equity, or if you must, positive cashflow as a result of operations during the year that, if it had not been paid out, would have been reclassified as retained earnings and added to shareholder equity.

If you don't believe me, then look at the 'Statement of Changes in Equity". There is a line in there which says 'dividends paid' which is a negative number. This means the dividend has been removed from the balance sheet and from a shareholder perspective (I don't believe there is any other way a shareholder should consider what is happening), the shareholder capital that formed the dividend is no longer in the ownership of the said shareholder. Thus our shareholder has lost capital but gained an equivalent dividend, less any tax that was sent to the IRD as a result of the dividend being paid. I think all of the above is unarguable and in the annual report in black and white.

But next things get a bit murky.....

You were spot on with CEN dividends having no impact on the earnings potential of the hydro schemes.

This is a point we both agree on, but to believe it means something rather odd is happening. If you agree that unimputed dividends can continue 'ad infinitum', at least to a certain level, this is equivalent to saying that the unimputed dividends paid somehow 'restore themselves' into the value of the company. This follows because paying the unimputed dividends has not compromised the ability of Contact to pay dividends in the future. Allow me to clarify:

If:

1/ Contact's underlying 'asset value' is determined by the sum of the discounted future value of the cashflows that Contact can expect to pay, AND

2/ Paying those unimputed dividends does not affect the ability of Contact to pay such dividends in the future THEN

it follows that there must a a 'magical' inflow of new capital onto the Contact books (new capital you will nevertheless not find in the Contact accounts) to replace the unimputed dividends paid out. This is a different category of 'thin air capital' compared to the other kind that I have previously talked about - the revaluation of any power station as a result of the ability to deliver more profit. Instead it is "thin air capital" that has effectively been restored to the company by dint of the fact that Contact's cash generating ability has not diminished as a result of paying an unimputed dividend. Sounds crazy, but frighteningly, it seems to make sense!

SNOOPY

Snoopy

28-02-2021, 11:06 PM

The second pillar revolved are around the impact on the individual shareholder. The company puts unimputed dividend of $1 into the shareholders pocket. Under my way of thinking, the tax of 30c is paid from the $1 in the pocket and the shareholder received a partial "return of capital" of 70c.

You are viewing an unimputed dividend as a return of capital which is taxed as a result of ending up in the shareholders pocket (the first pocket). I understand and agree with that way of looking at things.

Under your method, the tax of 30c is taken from a second pocket. The $1 in the first pocket is ignored, but the 30c taken out of the second pocket is deducted. I view that as inconsistent, despite the fact (and I acknowledge) the tax is paid to an entity outside of the circle of shareholder + entity.

I think what you are saying here is that by subtracting the imputed part of the dividend from the total dividend and effectively ignoring the imputed bit, I am effectively saying that the imputed part of the dividend does not exist. Therefore I should not take tax out of a dividend that I am claiming was effectively never paid in the first place?

However, I do not have this interpretation of what happened. I am not saying that the unimputed part of the dividend was not paid. I am saying it was paid but it had no cash benefit to the shareholder. If fact quite the opposite. The paying of the what is in effect shareholder capital back created a tax bill, which I think you acknowledge in the first part of your post that I have quoted.

SNOOPY

Snoopy

28-02-2021, 11:08 PM

Duplicate Deleted

Ahgong

02-03-2021, 09:43 AM

Share Offer Question. Do the shares issued under the Share Offer also get the dividend payable on the 30th March? Offer document seems to say so in so many words which created a doubt in my mind.

Jantar

02-03-2021, 09:50 AM

…...

.....who holds CEN shares, bought at a price significantly less than $6.04! I have a few bought at $0.01 :t_up:

theace

02-03-2021, 09:57 AM

How many are taking up the offer? I am considering it.

HKG2301

02-03-2021, 10:26 AM

How many are taking up the offer? I am considering it.

Will wait to see how the SP fares this week...

macduffy

02-03-2021, 01:31 PM

Will wait to see how the SP fares this week...

Don't forget that if the SP goes below $7, so will the issue price - to some degree.

I'm adding a few.

Ohdoyle

02-03-2021, 01:48 PM

Don't forget that if the SP goes below $7, so will the issue price - to some degree.

I'm adding a few.

Below 7.18 by my calculations. The lower of 2.5 percent discount of this weeks VWAP and 7 dollars will be the issue price.

In my way of thinking, the institutions who participated in the cap raise would also want to buy this week to prop the price up, help protect their investment.

Master98

02-03-2021, 09:53 PM

“deleted. “

turnip

02-03-2021, 10:15 PM

Share Offer Question. Do the shares issued under the Share Offer also get the dividend payable on the 30th March? Offer document seems to say so in so many words which created a doubt in my mind.

Yes, according to page 21 of the offer document:

10.1 Offer Shares issued under the Offer will rank equally with, and have the same voting rights, dividend rights and other entitlements as, existing fully paid Shares quoted on the NZX Main Board and the ASX. Eligible Shareholders will receive the biannual dividend for the six months ended 31 December 2020, which is expected to be paid on 30 March 2021 in respect of any Offer Shares allocated to them under the Offer.

RGR367

03-03-2021, 11:13 AM

How many are taking up the offer? I am considering it.

Participating at 7 bucks or lower for maximum allocation.

disc: IPO holder since then

see weed

03-03-2021, 02:04 PM

Don't forget that if the SP goes below $7, so will the issue price - to some degree.

I'm adding a few.
So lower the sp between now and Friday 5/3/21 the better, and lower sp for the offer. Then those new shares can then be traded on market from Friday 12/3/21. Anyone have any predictions what they think sp will do from Mon 8/3/21 to Thursday 11/3/21? And any sp predictions for Friday 12/3/21 taking into account that is also ex div day? I do have a prediction but would like to hear others thoughts first.

Entrep

03-03-2021, 02:37 PM

How come this pump through the end of 2019? The Oct 2020 is obviously easier to explain. Just trying to assess where the price might be were it not for COVID and everything else. Never really established a base over $6 until late 2019.

dibble

03-03-2021, 03:16 PM

So lower the sp between now and Friday 5/3/21 the better, and lower sp for the offer. Then those new shares can then be traded on market from Friday 12/3/21. Anyone have any predictions what they think sp will do from Mon 8/3/21 to Thursday 11/3/21? And any sp predictions for Friday 12/3/21 taking into account that is also ex div day? I do have a prediction but would like to hear others thoughts first.

Last 12 months taught us we usually get a better price just before and/or just after strike date...maybe that opportunity was last week... given the average (for the price set) is volume weighted perhaps larger buying volume from now to friday at above $7 will be evident. Not suggesting manipulation, heaven forbid. Would this be followed by a wee sell off next week? Either way not sure I'd rate this opportunity an absolute steal for those looking to just accumulate.

Snoopy

04-03-2021, 10:24 AM

Participating at 7 bucks or lower for maximum allocation.

disc: IPO holder since then

I am following your example RGR367. Despite getting a better deal than the institutions, I don't believe this offer will be an out of the ball park hit for small shareholders. In the medium term, I am expecting downward pressure on the CEN share price because of rising interest rates. Ten year rates at 2.5% within a couple of years I think is likely. But to an extent my own modelling takes this into account (my base investment case is for a 4.5% gross dividend yield).

What finally swung me over the line was the vision beyond the new Tauhara station. The effective rebuilding of the Wairakei with 167MW 'Geofuture' project, and the obvious careful attention to the cost effectiveness of each project in relation to competitor's developments (Capital Raise Presentation, slide 10). 'Geofuture' is not specifically labelled on that chart. But I am pretty sure it is the next geothermal 'cab off the rank' once the three competitors wind projects are built. Neither 'Geofuture', nor the benefit of the mooted North Island battery project are part of the forecast EBITDA lift from Tanhara alone.

The development pipeline is based around a geothermal field Contact know well and they have the in house team to carry out such projects when and if required. So I think execution risk is low.

I talked to my contact at Jarden's during the week who was very cagey. They are involved in the offer and so are under a blackout period for personal customer advice. However, I was told that prior to the offer proposal and investment window opening, Contact was their preferred investment in the gentailer sector.

Taking everything into account, including the somewhat unappealing alternative of a 1% term deposit, I think there are enough reasons to give this offer a good go.

SNOOPY

Waltzing

04-03-2021, 11:38 AM

Snoopy

04-03-2021, 12:08 PM

Detective Inspector Snoop "Ten year rates at 2.5"

the FED maybe stuck between a 1.9 T stimulus and higher employment but they have signalled that they want to keep the long end down. If inflation doesnt run hot look for them to try to sit on the long end in the next 12 to 24 months. They can sell the short end and buy the long end of the curve.

Just to be clear Waltzingman, I was talking about New Zealand 10 year government bond rates (currently 1.809%) not US 10 year bond rates (currently 1.467%) as I write this

Reference http://www.worldgovernmentbonds.com/bond-historical-data/new-zealand/10-years/

I am expecting the relative outperformance of the NZ economy will see interest rates continue to rise faster than the US here.

SNOOPY

RGR367

04-03-2021, 12:34 PM

HKG2301

04-03-2021, 01:00 PM

Will wait to see how the SP fares this week...

OK, the 'volume weighted average market price' for the week to date looks to be in the region of $7.05 - which is, coincidentally, the actual price as I type. Which would make the offer price $6.87-ish.

I actually bought CEN cheaper than that last week (at $6.78) but it seems to have formed a base here so, churlish to refuse.

Stocking up for the long haul...

tango

04-03-2021, 01:20 PM

I'm on the fence. My current base cost is $6 so this increases the cost basis
I'm also wondering if we are due a market correction that could push the whole sharemarket down. 24 hours to ponder...

Onion

04-03-2021, 01:43 PM

I am following your example RGR367. Despite getting a better deal than the institutions, I don't believe this offer will be an out of the ball park hit for small shareholders. In the medium term, I am expecting downward pressure on the CEN share price because of rising interest rates. Ten year rates at 2.5% within a couple of years I think is likely. But to an extent my own modelling takes this into account (my base investment case is for a 4.5% gross dividend yield).

What finally swung me over the line was the vision beyond the new Tauhara station. The effective rebuilding of the Wairakei with 167MW 'Geofuture' project, and the obvious careful attention to the cost effectiveness of each project in relation to competitor's developments (Capital Raise Presentation, slide 10). 'Geofuture' is not specifically labelled on that chart. But I am pretty sure it is the next geothermal 'cab off the rank' once the three competitors wind projects are built. Neither 'Geofuture', nor the benefit of the mooted North Island battery project are part of the forecast EBITDA lift from Tanhara alone.

The development pipeline is based around a geothermal field Contact know well and they have the in house team to carry out such projects when and if required. So I think execution risk is low.

I talked to my contact at Jarden's during the week who was very cagey. They are involved in the offer and so are under a blackout period for personal customer advice. However, I was told that prior to the offer proposal and investment window opening, Contact was their preferred investment in the gentailer sector.

Taking everything into account, including the somewhat unappealing alternative of a 1% term deposit, I think there are enough reasons to give this offer a good go.

SNOOPY

Thanks for all the analysis and information you provide Snoopy. I am giving the offer a “good go” too.

FatTed

04-03-2021, 02:13 PM

Thanks for all the analysis and information you provide Snoopy. I am giving the offer a “good go” too.

Second that thanks Snoopy, I'm also going to give it a nudge.

Snoopy

04-03-2021, 03:11 PM

I'm on the fence. My current base cost is $6 so this increases the cost basis
I'm also wondering if we are due a market correction that could push the whole sharemarket down. 24 hours to ponder...

Hey Tango,, I am not saying your position is wrong. To use the baseball analogy, I don't think anyone is being offered a home run on a plate here. It may be the best action is to let this pitch go through and wait for a more wayward pitch to have a swing at. I haven't committed to my own 'first hit' strategy to the extent of not keeping some gas in the tank for second swing at this pitcher myself ;-). The good thing is in this game, we don't all have to follow exactly the same strategy to all be winners.

SNOOPY

see weed

04-03-2021, 03:56 PM

I didn't qualify for the share offer, but have been accumulating under $7 at end of day for the last 5 days. My average price is 6.88 and hope to buy more next week as long as it is under $7 but may pay a bit more if I have to.:)

RTM

04-03-2021, 04:17 PM

I'm in to the max. Will sell what I don't need. As it may take my portfolio % a bit high should the share price grow in years to come.
Currently @ 3.5% with average buy 5.59.

tango

04-03-2021, 04:23 PM

Hey Tango,, I am not saying your position is wrong. To use the baseball analogy, I don't think anyone is being offered a home run on a plate here. It may be the best action is to let this pitch go through and wait for a more wayward pitch to have a swing at. I haven't committed to my own 'first hit' strategy to the extent of not keeping some gas in the tank for second swing at this pitcher myself ;-). The good thing is in this game, we don't all have to follow exactly the same strategy to all be winners.

SNOOPY

I thought about getting a firm allocation from Jordan but that that pitch go through because I thought it might be more attractive to wait for the SPP. The only catch is that an allocation from a broker is a definite amount of money and you don’t have to tie up 50 K while you wait for scaling.

I’m heavily invested in most of the energy shares. Kind of kicked myself for not selling down some MEL and CEN at market highs 😀

Right now, I feel that $7 is fair market value. I need to think about whether there could be an opportunity to buy at below market value in the next few months and whether the discount would be greater than any dividend foregone

dibble

04-03-2021, 04:45 PM

Right now, I feel that $7 is fair market value. I need to think about whether there could be an opportunity to buy at below market value in the next few months and whether the discount would be greater than any dividend foregone

Just split the diff, half your CEN cash in, keep rest (and whatever they return to you) and see how it pans out. Given it's a decidedly average offer anyway it might give you more comfort.

Biscuit

04-03-2021, 05:07 PM

Just pressed the button on the offer. More green energy for NZ, what's not to like, a reasonable company with a long term future.

HKG2301

04-03-2021, 05:26 PM

I'm on the fence. My current base cost is $6 so this increases the cost basis
I'm also wondering if we are due a market correction that could push the whole sharemarket down. 24 hours to ponder...

You're not wrong to consider the strong possibility of a US-led market correction (the US has begun a long overdue sell-off as we speak!) but you might find these unfashionable utility stocks return to popularity. That's assuming a regular risk-off, economic downturn-led correction, as opposed to another pandemic shock!

Also depends on your investment timeline and portfolio balance, I guess. Trying to time the bottom is just as hard as timing the top, so averaging in whilst keeping some powder dry for later buying opportunities wouldn't hurt.

Snoopy

04-03-2021, 05:44 PM

I’m heavily invested in most of the energy shares. Kind of kicked myself for not selling down some MEL and CEN at market highs

Yeah, gave myself a bit of a kick for not selling down then as well. Until I remembered my objective was to build a good dividend paying NZX portfolio. I was overweight with term deposits anyway (albeit these days that is merely equivalent to saying I had some ;-) ). So what would I have done with the money if I had sold? Put it in a cash deposit to wait for the next opportunity? I didn't see a plethora of such risk/return opportunities out there that I didn't own already (this was before the capital raising announcement of course). So in the end I was happy not to play the market with this one.

Right now, I feel that $7 is fair market value. I need to think about whether there could be an opportunity to buy at below market value in the next few months and whether the discount would be greater than any dividend foregone

Don't forget to factor in the brokerage saved by taking part in the direct offer as well.

SNOOPY

alex f

04-03-2021, 07:06 PM

Are the new shares entitled to the dividend ? (issue date is ex date, so I assume not)
2.5% saving or the div.,there not much in it

Were the institutional investors entitled to it?

Grimy

04-03-2021, 07:18 PM

Yes, entitled to the dividend. See post #2060 for an extract from the offer.

tango

05-03-2021, 09:31 AM

Yeah, gave myself a bit of a kick for not selling down then as well. Until I remembered my objective was to build a good dividend paying NZX portfolio. I was overweight with term deposits anyway (albeit these days that is merely equivalent to saying I had some ;-) ). So what would I have done with the money if I had sold? Put it in a cash deposit to wait for the next opportunity? I didn't see a plethora of such risk/return opportunities out there that I didn't own already (this was before the capital raising announcement of course). So in the end I was happy not to play the market with this one.

Don't forget to factor in the brokerage saved by taking part in the direct offer as well.

SNOOPY

Thanks, yep the brokerage does help a little and you did remind me that I am trying to build up income streams in these uncertain times. I used to rely on dividends and term deposits and even the call account rates in Jarden were enough to keep me happy staying in cash. Now, some of those dividends are suspended so regular divs are awesome. I still want a decent wad of cash to go shopping for bargains but other than that compounding growth stocks or high dividend yield is the name of the game.

I always like to have cash to buy dips and the global economy is on shaky ground right now so I see some bargains coming up.

If I had timed it right on CEN and MEL I could essentially buy back in and have 50% more shares.

I need to pay far more attention to Blackrock. I own shares in NASDAQ:SAVA which went up to US$117 when Blackrock were buying and then subsided to around $60 and now US$45
The Blackrock effect is real and can literally double the share price. Next time I'm selling!

Of course, I don't always get it right. I didn't go all in on Serko and only bought a modest amount and that went up like crazy after the SPP. No one has a crystal ball. You just have to make the best decision at the time and your arguments are highly persuasive.

see weed

05-03-2021, 12:06 PM

CEN down 21c? Just grabbed some for 6.77c

tango

05-03-2021, 12:28 PM

CEN down 21c? Just grabbed some for 6.77c

That's probably going to be a better price than people will get in the SPP
Oh the irony

Gonzoid

05-03-2021, 12:46 PM

If average sale price for the week is $7.00 then possible SPP $6.82.??

tango

05-03-2021, 01:11 PM

If average sale price for the week is $7.00 then possible SPP $6.82.??

Yes. Price is calculated as the lower of $7 or 2.5% discount to the volume weighted average market price of Contact shares traded this week. Have to hope for higher volume at lower prices to swing it a lot lower

If the VWA price is $7.00 then $6,82

HKG2301

05-03-2021, 02:39 PM

Well, since I've already applied for my offer shares, I'm happy for it to run as low as possible today, so I end up paying less for them. Then the SP can begin a steady recovery on Monday!

:cool:

alex f

05-03-2021, 02:55 PM

The VMA for the 5 days, is that the price at the close of each of those days ?

tango

05-03-2021, 03:23 PM

The VMA for the 5 days, is that the price at the close of each of those days ?

no
If you read above it’s volume weighted average

Entrep

05-03-2021, 03:40 PM

Big sell just took out all liquidity. That said, happy to join you all as a holder.

biker

05-03-2021, 03:57 PM

Sold at $11 bought back in at $6.63

tango

05-03-2021, 04:14 PM

Sold at $11 bought back in at $6.63
Coulda shoulda woulda

I thought long and hard about selling at that price.

biker

05-03-2021, 04:27 PM

Yeah, it looks good on its own but I’ve got plenty of those CSW’s as well tango

HKG2301

05-03-2021, 04:43 PM

Sold at $11 bought back in at $6.63

Nice! :t_up:

Southern Lad

05-03-2021, 06:02 PM

Yes. Price is calculated as the lower of $7 or 2.5% discount to the volume weighted average market price of Contact shares traded this week. Have to hope for higher volume at lower prices to swing it a lot lower

If the VWA price is $7.00 then $6,82

Looking at the NZX trading data for the week just ended, we had 9,117,157 shares traded for a total value of $63,026,261. This is an average of $6.9129, so less a 2.5% discount would produce a SPP issue price of $6.7401, which will be rounded down to $6.74. Do I have the calculation correct?

Snoopy

05-03-2021, 07:57 PM

Master98

05-03-2021, 08:03 PM

Take off a further 1.5% brokerage saved and I get $6.64. That means we CSWers (Contact Sharescheme Wallies?) have near enough matched Biker's buy price! The only drawback being, we don't know what percentage of shares we asked for that we got!

SNOOPY
why so high brokerage, mine is 0.2%.

Snoopy

05-03-2021, 08:19 PM

why so high brokerage, mine is 0.2%.

I guess it is because I support a small local full service local broker, and I don't do the grand volume of trades you do oh Master. Or maybe its a case of 'kick the dog.'! Either way, the length of time I tend to hold shares makes the brokerage rate not material in the big picture.

SNOOPY

Master98

05-03-2021, 08:52 PM

I guess it is because I support a small local full service local broker,

SNOOPY
lol, I know you are rich, anyway SPP price will be way over $6.64 for other shareholders.

tango

05-03-2021, 10:44 PM

lol, I know you are rich, anyway SPP price will be way over $6.64 for other shareholders.

$6.73 is better than the institutions paid at $7.00 so it’s not a bad deal for shareholders

Snoopy

11-03-2021, 08:58 AM

Looking at the NZX trading data for the week just ended, we had 9,117,157 shares traded for a total value of $63,026,261. This is an average of $6.9129, so less a 2.5% discount would produce a SPP issue price of $6.7401, which will be rounded down to $6.74. Do I have the calculation correct?

According to this morning's news release from Contact, your calculation is 'spot on' Southern Lad. $6.74 it is!

https://www.nzx.com/announcements/368944

"Contact Energy Limited (NZX/ASX: CEN) (“Contact”) is pleased to announce that its non-underwritten NZ$75 million retail offer (“Retail Offer”) has closed oversubscribed. The Retail Offer was well supported by shareholders, with Contact receiving applications totalling approximately NZ$230 million. Scaling and the return of any surplus application amounts will be carried out in accordance with the terms of the Retail Offer contained in the Retail Offer Booklet dated 18 February 2021."

Around 3 times oversubscribed! But no mention of accepting oversubscriptions as per the offer document.

SNOOPY

JAYAY

11-03-2021, 09:27 AM

Does anyone know the formula for the scaling back of applications?

winner69

11-03-2021, 09:31 AM

Does anyone know the formula for the scaling back of applications?

If you are of national importance (like Blackcaps) you get full quota ..... rich and famous full quota .... rest need to be happy with what they get

Sorry not the answer you wanted ....but trust them to be fair to all

Onion

11-03-2021, 12:18 PM

Does anyone know the formula for the scaling back of applications?

No real detail except Terms and Conditions 9.

"... having regard to the number of Existing Shares held by the applicant ...".

RTM

11-03-2021, 08:05 PM

Southern Lad

11-03-2021, 11:20 PM

Around 3 times oversubscribed! But no mention of accepting oversubscriptions as per the offer document.

SNOOPY

Assume we will see an announcement Friday on scaling and whether any oversubscription will be accepted. Given the need to fund the upcoming dividend on any additional shares plus the closing price today of $7.09 being well north of $6.74, I’m picking they will pass up the opportunity to increase the SPP above the $75m. Given CEN’s ability to raise debt, a decision to increase the SPP issue size will be an indication that directors think $6.74 cum dividend is above fair value.

GlennS

12-03-2021, 08:52 AM

“Trading of new shares issued under the Retail Offer is expected to
commence on NZX on 12 March 2021 ......”

When will I know how many shares I got ?
When will my funds be returned to me ?
Anyone know ?
Thx in advance, on holiday and don’t have full electronic toys to research it properly.

From the offer documentation… You will receive the Offer Shares issued to you under the Offer on the Allotment Date, which is currently expected to be on or around 12 March 2021. Confirmation of the number of Offer Shares issued to you under the Offer will be sent on the Despatch Date, currently expected to be on or around 17 March 2021. Refunds will be made by direct credit only to the bank account held by the Registrar. Any refunds will be issued within five business days following the Allotment Date.

Southern Lad

12-03-2021, 08:52 AM

SPP allocations are now showing up via Link Market Services log in.

Pixelator

12-03-2021, 09:12 AM

We got 69% of what we applied for. Or 15.34% of holding.

Onion

12-03-2021, 09:14 AM

SPP allocations are now showing up via Link Market Services log in.

Allocation proves how small time I am -- applied for $50k, got $2271 worth (337 shares added to 2200 existing).

;)

mfd

12-03-2021, 09:25 AM

Allocation proves how small time I am -- applied for $50k, got $2271 worth (337 shares added to 2200 existing).

;)

Fits with my experience - I received approx 15% of my existing stake. Keeps me ahead of the dilution of ~7-8%. Documents were quite clear scaling would be based on existing holding rather than amount applied for, but I did punt a little extra in case of undersubscription.

Waiuta

12-03-2021, 09:27 AM

Allocation proves how small time I am -- applied for $50k, got $2271 worth (337 shares added to 2200 existing).

;)
That's exactly what I got and I had the same holding prior. I applied for $13000. So, scaled depending on holding and not on the oversubscription percentage.

Onion

12-03-2021, 09:50 AM

That's exactly what I got and I had the same holding prior. I applied for $13000. So, scaled depending on holding and not on the oversubscription percentage.

That is pretty much what I expected - it is the fairest way to allocate - reward existing holders rather than just those with lot of cash lying around. It allows existing shareholders to avoid too much dilution.

I did load up my application in case they gave some weight to that aspect (and expecting heavy scaling -- I didn't really want all that I applied for).

Southern Lad

12-03-2021, 09:57 AM

ASX Appendix 2A lodged this morning advises 11,127,594 new shares issued under the SPP, so at $6.74 this comes to $74,999,983.56. Indicates that no over-subscription amount has been issued.

Consistent with others, I was allocated c. 15% of the existing holding.

GlennS

12-03-2021, 10:04 AM

Same, 15.3% of existing holding.

Gonzoid

12-03-2021, 11:28 AM

Just as well I dived in and bought on market. Got 226 on SPP of the 1000 approx I wanted.

RTM

12-03-2021, 11:49 AM

From the offer documentation… You will receive the Offer Shares issued to you under the Offer on the Allotment Date, which is currently expected to be on or around 12 March 2021. Confirmation of the number of Offer Shares issued to you under the Offer will be sent on the Despatch Date, currently expected to be on or around 17 March 2021. Refunds will be made by direct credit only to the bank account held by the Registrar. Any refunds will be issued within five business days following the Allotment Date.
Thx. That’s what I wanted.

ananda77

12-03-2021, 01:32 PM

Just as well I dived in and bought on market. Got 226 on SPP of the 1000 approx I wanted.

Yes, smart thing done. Wanted close to 3000, bought 2400 (6.70) on market last Friday, being allotted 693 (~14% of holding). Sold 2400 yesterday at 7.15. At the moment, just happy with the situation

macduffy

12-03-2021, 07:01 PM

Well, I received 100% of the $10,000 asked for - 1483 shares. Mind you, I hold in excess of 10,000 shares. Shame I didn't have more spare cash.

glennj

13-03-2021, 12:13 PM

Well, I received 100% of the $10,000 asked for - 1483 shares. Mind you, I hold in excess of 10,000 shares. Shame I didn't have more spare cash.

It appears as if my application has been scaled as I have been allocated about 88% of the shares the money taken from my account could have bought at the strike price. The refund due has not hit the bank yet but I see they are undertaking to do this within 5 working days of the offer allocation. I'm happy enough having secured more than enough shares to stop my holding being diluted.

Southern Lad

13-03-2021, 02:40 PM

The refund due has not hit the bank yet but I see they are undertaking to do this within 5 working days of the offer allocation.

Email notification from Contact late yesterday states that surplus application amounts will be direct credited on 16 March (Tuesday) to bank account details held by Link Market Services.

Snoopy

14-03-2021, 09:04 PM

OTOH the Tiwai Point aluminium smelter is likely on a three year wind down closing path. The power market is consequently in a state of flux as whether an energy intensive replacement industry like hydrogen fuel production, will arrive.

Contact and Meridian are behind a study to look at manufacturing hydrogen in the deep south.

https://contact.co.nz/aboutus/media-centre/2020/12/10/meridian-and-contact-to-investigate-potential-green-hydrogen-facility-in-lower-south-island

And now Contact is looking to track test hydrogen powered vehicles

https://www.velocitynews.co.nz/a-cheeky-bid-for-bruce-mclaren-raceway/

"TMP is on better terms with a relative behemoth of the listed company world, Contact Energy, which is talking about using the facility as a testing ground for hydrogen-powered vehicles."

"Contact is building a pilot hydrogen production plant in partnership with Obayashi, a Japanese industrial conglomerate, to test the economics of making so-called ‘green’ hydrogen using geothermal energy from the nearby Tauhara steamfield."

I guess it is all small scale, so it wouldn't have to be notifiable to the NZX. But I didn't know Contact were already building their own plant for hydrogen fuel production.

SNOOPY

turnip

14-03-2021, 10:21 PM

"Contact is building a pilot hydrogen production plant in partnership with Obayashi, a Japanese industrial conglomerate, to test the economics of making so-called ‘green’ hydrogen using geothermal energy from the nearby Tauhara steamfield."

Using geothermal energy for hydrogen production is interesting. The electrolysis process is more efficient at higher temeratures -- the higher the better but even 100C is useful -- so the project could make good use of the residual heat in the geothermal fluid.

Snoopy

18-03-2021, 02:38 PM

We got 69% of what we applied for. Or 15.34% of holding.

It was the percentage of what you had before that determined what you got, I got 15.3% of my previous holding as well. My 'average buy price' has now blown out to $5.07 :-(. Still at $6.74 for the latest tranche (that is 26cps less than the big boys paid) I can't complain. Except, the market seems to be moving down today. The price has got to as low as $6.77 as I write this (admittedly buying in today at this price no longer qualifies you for the 14cps March 31st dividend, the ex date being 15th March). Is this the much touted dumping before the end of the month by that crazy US based ESG fund that bought in at crazy prices earlier in the year coming to fruition?

SNOOPY

Lego_Man

18-03-2021, 03:34 PM

Latest S&P release has MEL and CEN only around 1% of the new index. Implementation is in April.

Snoopy

18-03-2021, 04:45 PM

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/CEN/368135/341087.pdf

Only just got round to reading the SPH notice from Vanguard (above) which lists the "transactions and events giving rise to ceasing of substantial holding".

It's from the period 12 Feb (last disclosure) to 23 Feb (this disclosure) and underlines the effect of the recent equity raise dilution:

last disclosure
total number held in class: 36,010,330
total in class: 718,565,905
total percentage held in class: 5.011%

this disclosure (current holding after ceasing to have substantial holding)
total number held in class: 37,063,798
total in class: 764,994,476
total percentage held in class: 4.845%

So even though Vanguard (or, more accurately, Vanguard's clients) has been almost exclusively a buyer throughout the period, adding over a million shares in the space of a fortnight, it has been diluted out of it's 5% 'substantial shareholder' holding.

Watch this space. Lots to happen over the next fortnight, with the effect of the Retail Offer's potential 2.5% discount rocking the SP next week, swiftly followed by CEN going ExD the week after, on 12 Mar.

Ample opportunity to accumulate on the dips.

Latest S&P release has MEL and CEN only around 1% of the new index. Implementation is in April.

At the last disclosure Vanguard held 37,063,798 shares representing 4.845% of all shares held

Subsequent to this the 'small shareholder offer' has resulted in an additional 11,127,594 shares being issued, resulting in a grand total of 776,122,070 Contact shares now being on issue.

That means the Vanguard stake now represents: 37,063,798 / 776,122,070 = 4.776% of all shares held.

The 1% target represents 7,761,220 shares,

So the number of shares that Vanguard needs to sell by 1st April is: 37,063,798 - 7,761,220 = 29,302,578

I think somewhere near 37m CEN shares have been traded since the 23rd February reporting date for the Vanguard stake. Of course not all of those shares sold will be Vanguard shares. if we look at trading market spikes as evidence of Vanguard selling, they may have disposed of around 10m CEN shares so far. So around 20m more to go over the next ten trading days? Potentially that is a big overhang? The recent local bottom is $6.60. Could that be where we are heading?

SNOOPY

Ohdoyle

18-03-2021, 06:44 PM

Link to the release ? I am having a hard time finding it.

Ohdoyle

18-03-2021, 06:52 PM

At the last disclosure Vanguard held 37,063,798 shares representing 4.845% of all shares held

Subsequent to this the 'small shareholder offer' has resulted in an additional 11,127,594 shares being issued, resulting in a grand total of 776,122,070 Contact shares now being on issue.

That means the Vanguard stake now represents: 37,063,798 / 776,122,070 = 4.776% of all shares held.

The 1% target represents 7,761,220 shares,

So the number of shares that Vanguard needs to sell by 1st April is: 37,063,798 - 7,761,220 = 29,302,578

I think somewhere near 37m CEN shares have been traded since the 23rd February reporting date for the Vanguard stake. Of course not all of those shares sold will be Vanguard shares. if we look at trading market spikes as evidence of Vanguard selling, they may have disposed of around 10m CEN shares so far. So around 20m more to go over the next ten trading days? Potentially that is a big overhang? The recent local bottom is $6.60. Could that be where we are heading?

SNOOPY

I'm assuming Lego means roughly 1 percent of the index portfolios. That will translate to more than 1 percent of the companies roughly. Although probably not quite 2 percent. So still plenty to sell.

Ohdoyle

18-03-2021, 07:03 PM

Scrunch

18-03-2021, 09:21 PM

Link to the release ? I am having a hard time finding it.

S&P is still in consultation around the most recent proposal, with feedback required by 19 March 2021. They are now proposing 100 shares, up from the current 30.
There's a link in the document to a spreadsheet which among other things, lists the new portfolio weights that would apply. The two critical one's for NZ are:
>Meridian 1.053% (Currently 4.5%)
>Contact 0.936% (Currently 4.5%)

https://www.spglobal.com/spdji/en/documents/indexnews/announcements/20210312-1335572/1335572_spglobalcleanenergyconsultexpscorecountwei ghtingupdated3-12-2021.pdf

Scrunch

18-03-2021, 09:24 PM

...duplicate

Scrunch

18-03-2021, 09:52 PM

At the last disclosure Vanguard held 37,063,798 shares representing 4.845% of all shares held

Subsequent to this the 'small shareholder offer' has resulted in an additional 11,127,594 shares being issued, resulting in a grand total of 776,122,070 Contact shares now being on issue.

That means the Vanguard stake now represents: 37,063,798 / 776,122,070 = 4.776% of all shares held.

The 1% target represents 7,761,220 shares,

So the number of shares that Vanguard needs to sell by 1st April is: 37,063,798 - 7,761,220 = 29,302,578

I think somewhere near 37m CEN shares have been traded since the 23rd February reporting date for the Vanguard stake. Of course not all of those shares sold will be Vanguard shares. if we look at trading market spikes as evidence of Vanguard selling, they may have disposed of around 10m CEN shares so far. So around 20m more to go over the next ten trading days? Potentially that is a big overhang? The recent local bottom is $6.60. Could that be where we are heading?

SNOOPY
Snoopy, what about the Blackrock held shares for iShares Global Clean Energy ETF?

At the time of posting the link below stated they held 43,619,902 shares (at 16 March 2021). These shares were 4.01% of the clean energy portfolio holdings. Over 75% of these are going to need to be sold to get down to the new proposed weighting of 0.936%. So far no net sales have occurred (the 16 March shares owned is higher than the 26 Feb quantity of 43,073,956. This is again higher than the 31 Dec holding of 32,774,120 shares).
https://www.blackrock.com/us/individual/products/239738/ishares-global-clean-energy-etf

Snoopy

18-03-2021, 10:37 PM

Snoopy, what about the Blackrock held shares for iShares Global Clean Energy ETF?

At the time of posting the link below stated they held 43,619,902 shares (at 16 March 2021). These shares were 4.01% of the clean energy portfolio holdings. Over 75% of these are going to need to be sold to get down to the new proposed weighting of 0.936%. So far no net sales have occurred (the 16 March shares owned is higher than the 26 Feb quantity of 43,073,956. This is again higher than the 31 Dec holding of 32,774,120 shares).
https://www.blackrock.com/us/individual/products/239738/ishares-global-clean-energy-etf

I think the iShares holding and the Vanguard holding is one and the same. Vanguard are the largest shareholders in the Blackrock group.

SNOOPY

Maxtrade

30-03-2021, 04:03 PM

I think the iShares holding and the Vanguard holding is one and the same. Vanguard are the largest shareholders in the Blackrock group.

SNOOPY

Quick question guys. From the information that I have been able to find, the clean energy funds will need to be selling off to rebalance from 2nd of April to 16th of April.Can anyone confirm if this is correct please.

I noted on previous thread comments that the sell-off would be completed by April 1, but I think that is incorrect. From my understanding the rebalance sell off will be occurring over the next two weeks. So in turn SP likely to drop substantially for CEN and MEL over the next 2 weeks.

Please let me know if this is right.

Thanks

Maxtrade

30-03-2021, 04:16 PM

April 2nd iShares Global clean energy ETF sell off commences, needs to be completed by April 16th

44wishlists

31-03-2021, 04:51 PM

Maxtrade

06-04-2021, 04:14 PM

Index balance doesn't work like that. No doubt there will be huge volume change hands during this period, however, it is not necessary going to cause a massive sell off on the market. A lot will be changed hands between institutes. You can google on the subject, and you will find plenty of useful information for your bedtime reading.

Today was the first round of iShares ETF rebalancing sell off.

Agree with your previous comment, most transactions we don't even see on market, but the result is the same whenever there is a large sell off in a company such as this, the SP normally declines. Hence todays major drop in share price. This week there will be continued bulk sell off of Contact and Meridian shares. In turn likely we will continue to see SP decline further throughout the week. Will likely see SP test previous 6.2 support level by end of the week.

Maxtrade

07-04-2021, 11:19 AM

Today was the first round of iShares ETF rebalancing sell off.

Agree with your previous comment, most transactions we don't even see on market, but the result is the same whenever there is a large sell off in a company such as this, the SP normally declines. Hence todays major drop in share price. This week there will be continued bulk sell off of Contact and Meridian shares. In turn likely we will continue to see SP decline further throughout the week. Will likely see SP test previous 6.2 support level by end of the week.

456 Million Contact energy, and 510 Million Meridian shares to be sold off April 19th. No wonder there's so many shorts on the stock this week. Question is just how low the SP will be forced down to on the day the sell off must be actioned.

https://www.afr.com/markets/equity-markets/kiwi-energy-players-brace-for-blackrock-etfs-mega-selldown-20210402-p57g8n

see weed

14-04-2021, 12:58 PM

44wishlists

14-04-2021, 01:13 PM

SP up 51c in last week. What happened to sell off:ohmy:

Maybe just Maxtrade traded max. Sold all his holding off.

Entrep

14-04-2021, 01:34 PM

Yeah was hoping to pick some more up cheaply on the supposed weakness

lawson

14-04-2021, 02:01 PM

Blackrock are supposed to be buying & selling the shares involved in their rebalance effective April 19th our time. So whatever is going to happen (or not) is supposed to be scheduled for next week. Time will tell how this plays out.

Maxtrade

14-04-2021, 05:06 PM

SP up 51c in last week. What happened to sell off:ohmy:

Traders jumping the gun, FOMO seeing SP increasing thinking that was the bottom. The sell off hasn't even really been actioned yet. Blackrock will likely try to time holding out most availability until managers can see the market has buyers and increasing SP. I am sure they are happy to see the SP where it is already now up off recent lows!

A lot of transactions will be off market with brokers at discounted prices. However next Monday/Tuesday NZ time will be when shorters are waiting for. Buy those shares back when supply is saturated and in turn SP will be lower. Its an index fund so proportionally to the global clean energy fund the small amount of CEN and MEL being sold at a lower SP won't be a concern to the fund as a whole really.
Time will tell, but logic suggests that next week there will be an overabundance of shares to be sold, SP will follow suit until they are all sold (and there is a LOT to be sold off).
Shorters will likely be looking to buy back in CEN 6.0 - 6.2, and MEL 4.5 - 4.75. Who knows with this amount of shares to be sold it may temporarily drive SP's even lower. Look at what happened on the other end of the scale when all those shares needed to be purchased by the ETF, SP skyrocketed. Likely will do the reverse next week on the downside.

SP will then probably stabilise back where SP's were trading prior to all of this. CEN 6.25-6.4, MEL 4.75-4.85. Keeping in mind Rio Tinto is still on wind down mode. Given a bit of respite for now but that will be relatively short lived until it comes back to the forefront again.

Many of the traders looking for growth gains off energy shares will re-evaluate and realise these spikes in our energy companies were somewhat 'artifially driven'. Once corrected, then these energy companies will loose their shine to many, and the share price will bounce around these lower more normalised levels again.

Scrunch

14-04-2021, 10:49 PM

At the time of posting the link below stated they held 43,619,902 shares (at 16 March 2021).
https://www.blackrock.com/us/individual/products/239738/ishares-global-clean-energy-etf

Checked this URL again. As at 13 April 2021 Blackrock still held 43,506,182 shares. This volume is yet to hit, but a lot of institutions will have lightened up their holdings in advance of buying when the selling occurs.

The million dollar question is how competitive will the buying be when the majority of these shares are released onto the market, and therefore how much will the price fall (assuming of course that it does)!!

ananda77

15-04-2021, 09:28 AM

Checked this URL again. As at 13 April 2021 Blackrock still held 43,506,182 shares. This volume is yet to hit, but a lot of institutions will have lightened up their holdings in advance of buying when the selling occurs.

The million dollar question is how competitive will the buying be when the majority of these shares are released onto the market, and therefore how much will the price fall (assuming of course that it does)!!

If Blackrock uses dark pool trading, the market price of cen will not be affected at all...

winner69

15-04-2021, 09:36 AM

Posted this a week ago on MEL thread - suppose still applies

—————————————————————————————————-—————————-

Businessdesk has article BlackRock’s looming sell down of Meridian may never happen

Quotes a guy from Kernel Wealth who says all the talk is incorrect

Like this bit -

“To be frank, most active managers in New Zealand don’t understand how indices work,” he said.

Maxtrade

16-04-2021, 03:23 PM

HKG2301

16-04-2021, 03:59 PM

What happened to the sell off. Haven't seen any large volume of shares traded today yet. I know the trading day isn't over yet but surely they aren't just going to dump them on market end of the day for Mondays opening?

Dunno. It was your sell-off scenario, so maybe you can tell us? :)

Slightly >average volume today, up 4%. Could it really be a pump and dump? Possible head & shoulders forming here? I certainly see resistance at these levels.

I've sold down my CEN holding by 20% just in case, taking advantage of this afternoon's spike. Next week we'll see...

pak

16-04-2021, 04:28 PM

Trading being extended for 45min for the big event. Stay tuned.

Maxtrade

16-04-2021, 05:20 PM

Balance

16-04-2021, 05:27 PM

Looks like shorters have been dealt to - ouch!

Master98

16-04-2021, 05:29 PM

850man

23-04-2021, 11:35 AM

https://www.nzx.com/announcements/371169

Exec level cashing in (or out depending how you look at it)

Snoopy

06-05-2021, 09:04 PM

Unbelievable that much support at $7.5 for CEN. Blackrock got away lightly! Surprised buyers set their bids so high? I know to take advantage of picking up the low of the days trade, but at $7.50 didn't end up being much of a 'bargain'.

'Blackrock' as a group cover a multitude of different international companies. Given this I thought it was a worthwhile exercise to look at the complete declared picture to see exactly what happened in the sell down. On record are Blackrock's declared peak holdings on 14-01-2021 and their holdings on 20-04-2021 just after the sell down.

No. Shares Held 20-04-2021No. Shares Held 14-01-2021Possible Shares Internally Redistributed

Aperico Group LLC177,851 (+100%)
0177,851

Blackrock Advisors (UK) Ltd.7,373,646 (-82.6%)42,277,344

Blackrock Asset Management Canada Limited260,683 (+24.7%)209,194
51,489

Blackrock Asset Management Deutscheland AG5,904,181 (+57.0%)3,761,194
2,142,987
]

Blackrock Asset Management North Asia Limited4,677 (+443%)1,056
3,621

]
Blackrock Financial Management Inc109,585 (+261%)41,98567,600

Blackrock Fund Advisors15,979,436 (-67.1%)48,497,377

Blackrock Institutional Trust Co., National Association5,029,558 (-6.09%)5,355,835

Blackrock Investment Management (Australia) Limited6,116 (+0%)6,116

Blackrock Investment Management (UK) Limited2,878,563 (+1.94%)2,823,72854,835

Blackrock Investment Management LLC9,634 (+427%)2,2557,739

Blackrock Japan Co. Ltd.30,101 (+0%)30,101

Blackrock Netherlands BV0 (-100%)97,535

Total Percentage Holding4.866%14.349%

Total Holding Possibly Redistributed Internally
2,506,122

The above table does not take into account the number of shares subscribed to in the $400m cash issue. Such shares were issued on 16th February 2021. The $400m raised from institutional shareholders was from a total pool of $475m raised, with $400m representing proportionately the institutional shareholder base of Contact Energy. In the 16th April press release Contact said:

"All existing eligible institutional shareholders who bid for their pro-rata allocation of the Placement were allocated at least that amount of new shares."

Before the cash issue there were 718,565,905 shares on issue.

The representative institutional shareholder component of that was:

400/475 x 718,565,905 = 605,108,130

The total number of new shares issued to institutions at the tender price of $1.70 was:

$400m / $4.70 = 85.106m new shares

This represented 85.106 / 605.109 = 14.06% of the pre-existing CEN shares in this owner group. So we can assume that any Blackrock group company that wanted to increase their holding of shares could have boosted their holding by this percentage, if they had wanted to do so.

There is no evidence in the above table that any of the Blackrock companies took up their entitlement to the maximum. Indeed it would be kind of dumb to do so, knowing that other companies within the group were looking to sell down. So my guess is there was an internal redistribution, of up to 2,506,122 shares from Blackrock's ESG fund, into some of their other funds.

I had assumed that the Blackrock ESG fund, which was doing the sell down, was purely US based (it looks like as 'Blackrock Fund Advisors'). However, the very large sell down by 'Blackrock Advisors UK Ltd.' would suggest that perhaps some of that fund was UK domiciled? In any event the number of shares sold by those two aforementioned funds totalled 67,421,639 shares. That is far more than I suggested may have been redistributed and reabsorbed by other arms of Blackrock.

On 22nd April Milford Asset management issued a notice to say that they had bought 25,010,276 CEN shares 'on market'. The timing of this transaction would suggest that those shares were bought from Blackrock. There have been no other institutions declaring they have bought a significant stake since. So my guess is that the remaining 50m odd shares that Blackrock disposed of went to other institutions in such a way that no other institution broke the 5% share ownership threshold that required a declaration.

SNOOPY

Maxtrade

07-05-2021, 09:26 AM

'Blackrock' as a group cover a multitude of different international companies. Given this I thought it was a worthwhile exercise to look at the complete declared picture to see exactly what happened in the sell down. On record are Blackrock's declared peak holdings on 14-01-2021 and their holdings on 20-04-2021 just after the sell down.

No. Shares Held 20-04-2021
No. Shares Held 14-01-2021
Possible Shares Internally Redistributed

Aperico Group LLC
177,851 (+100%)
0
177,851

Blackrock Advisors (UK) Ltd.
7,373,646 (-82.6%)
42,277,344

Blackrock Asset Management Canada Limited
260,683 (+24.7%)
209,194
51,489

Blackrock Asset Management Deutscheland AG
5,904,181 (+57.0%)
3,761,194
2,142,987

Blackrock Asset Management North Asia Limited
4,677 (+443%)
1,056
3,621

Blackrock Financial Management Inc
109,585 (+261%)
41,985
67,600

Blackrock Fund Advisors
15,979,436 (-67.1%)
48,497,377

Blackrock Institutional Trust Co., National Association
5,029,558 (-6.09%)
5,355,835

Blackrock Investment Management (Australia) Limited
6,116 (+0%)
6,116

Blackrock Investment Management (UK) Limited
2,878,563 (+1.94%)
2,823,728
54,835

Blackrock Investment Management LLC
9,634 (+427%)
2,255
7,739

Blackrock Japan Co. Ltd.
30,101 (+0%)
30,101

Blackrock Netherlands BV
0 (-100%)
97,535

Total Percentage Holding
4.866%
14.349%

Total Holding Possibly Redistributed Internally

2,506,122

The above table does not take into account the number of shares subscribed to in the $400m cash issue. Such shares were issued on 16th February 2021. The $400m raised from institutional shareholders was from a total pool of $475m raised, with $400m representing proportionately the institutional shareholder base of Contact Energy. In the 16th April press release Contact said:

"All existing eligible institutional shareholders who bid for their pro-rata allocation of the Placement were allocated at least that amount of new shares."

Before the cash issue there were 718,565,905 shares on issue.

The representative institutional shareholder component of that was:

400/475 x 718,565,905 = 605,108,130

The total number of new shares issued to institutions at the tender price of $1.70 was:

$400m / $4.70 = 85.106m new shares

This represented 85.106 / 605.109 = 14.06% of the pre-existing CEN shares in this owner group. So we can assume that any Blackrock group company that wanted to increase their holding of shares could have boosted their holding by this percentage, if they had wanted to do so.

There is no evidence in the above table that any of the Blackrock companies took up their entitlement to the maximum. Indeed it would be kind of dumb to do so, knowing that other companies within the group were looking to sell down. So my guess is there was an internal redistribution, of up to 2,506,122 shares from Blackrock's ESG fund, into some of their other funds.

I had assumed that the Blackrock ESG fund, which was doing the sell down, was purely US based (it looks like as 'Blackrock Fund Advisors'). However, the very large sell down by 'Blackrock Advisors UK Ltd.' would suggest that perhaps some of that fund was UK domiciled? In any event the number of shares sold by those two aforementioned funds totalled 67,421,639 shares. That is far more than I suggested may have been redistributed and reabsorbed by other arms of Blackrock.

On 22nd April Milford Asset management issued a notice to say that they had bought 25,010,276 CEN shares 'on market'. The timing of this transaction would suggest that those shares were bought from Blackrock. There have been no other institutions declaring they have bought a significant stake since. So my guess is that the remaining 50m odd shares that Blackrock disposed of went to other institutions in such a way that no other institution broke the 5% share ownership threshold that required a declaration.

SNOOPY

Very informative thank you Snoopy.

So all said and done do you think that Blackrocks internal redistribution will subsequently be slowly sold down over its subsidiaries in the coming months. Putting a continued downward pressure on the SP. This obviously would be a much smarter way of selling down CEN and MEL shares rather than trying to force sell such a large quantity on 16th April.

Snoopy

07-05-2021, 10:33 AM

Very informative thank you Snoopy.

So all said and done do you think that Blackrocks internal redistribution will subsequently be slowly sold down over its subsidiaries in the coming months. Putting a continued downward pressure on the SP. This obviously would be a much smarter way of selling down CEN and MEL shares rather than trying to force sell such a large quantity on 16th April.

Firstly I need to point out that I don't know if the internal share redistribution within Blackrock took place or not. I am only saying it would have been logical to do it from an overall Blackrock perspective. The problem is that although we know the names of all of these Blackrock business units, we don't know how they operate or what their objectives are or how genuinely independent they are. The 'iShares' brand under which the aforementioned ESG fund held those 'Contact' and 'Meridian' shares does not appear on that shareholding naming list. 'iShares' is literally a 'consumer brand' for Blackrock it would seem. The only thing that gives us a clue as to where those 'IShares' holdings were registered is the large drop in certain Blackrock entities' holdings on or about the date we knew those sell downs occurred.

I would assume that some of those other Blackrock companies are part of market determined index funds. Any CEN shares held within those are clearly not overhangs waiting to be sold. If the internal share transfers did occur as I suggested, then the remaining overhang is likely not more than 2.5m shares. It is not unusual for CEN to trade more than 1m shares in a day. So I am fairly sure Blackrock could feed the market any remainder into the market without severely knocking the CEN share price about.

You say that forcing a large sell down on a certain date was a poor way to dispose of a large holding and I would agree - if that is what happened. However, the fact that the share price did not collapse would suggest to me that there was a lot of behind the scenes maneuvering lining up buyers before the actual sell down registration date.

SNOOPY

fish

07-05-2021, 11:43 AM

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/CEN/371815/345560.pdf

Looks to me that the April Operating Report shows a significant increase in netback and possible future operating profit and indicates this will continue(page 2-overview looks promising ) .
Would be interested to hear more expert views on this

Jantar

16-08-2021, 08:58 AM

A very nice dividend coming. 21c is not too bad at all.

RTM

16-08-2021, 09:25 AM

A very nice dividend coming. 21c is not too bad at all.

Down a bit tho.....10%, not sure I would characterise that as "slightly".

"He said it was pleasing to deliver investors a 35 cents per share annual dividend, down slightly from 39 cents per share in FY20."

Balance

16-08-2021, 09:34 AM

fish

17-08-2021, 07:16 AM

In line with market expectations.

NO surprises from gleaning the financials.

Yes in line with expectations but I would like to know why they reduced the dividend (?need cash for Tauhara-construction costs could be increasing )

Free cashflow from operations rose 28% to $371m.
That equates to 72% of free cashflow, the lowest payout level since the 2017 financial year when the ratio was 61%. In the 2020 financial year, when Contact reported relatively weak results, the 39cps total dividends amounted to 97% of free cashflow. The company gives guidance of dividends at between 80% and 100% of annual free cashflow.

However I still feel it is very promising .
Could be an indication that MEL will follow with increased cashflow

Jantar

17-08-2021, 07:52 AM

Yes in line with expectations but I would like to know why they reduced the dividend (?need cash for Tauhara-construction costs could be increasing )...

Perhaps this line explains it: "He said it was pleasing to deliver investors a 35 cents per share annual dividend, down slightly from 39 cents per share in FY20. "This is in line with the dividend policy we updated in February this year where we target a pay-out ratio of between 80 per cent and 100 per cent of the average operating free cash flow of the preceding four financial years."

winner69

17-08-2021, 08:51 AM

Perhaps this line explains it: "He said it was pleasing to deliver investors a 35 cents per share annual dividend, down slightly from 39 cents per share in FY20. "This is in line with the dividend policy we updated in February this year where we target a pay-out ratio of between 80 per cent and 100 per cent of the average operating free cash flow of the preceding four financial years."

Be interesting to see Snoopy's updated table of Operating Cash Flows and payout ratios

iceman

19-08-2021, 04:33 PM

I have been unsuccessfully searching to see what discount applies to the DRP with the upcoming dividend. DRP plan only says it's up to the Directors, as far as I can see !
Can someone here enlighten me ?

ADDITION: Found it http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/CEN/377295/352256.pdf
0% discount. Think I'll give it a miss !!

ronaldson

20-08-2021, 07:57 AM

When reflecting upon the reason for the 4cps annual dividend reduction for y/e 30 June 2021 it is good to remember 46.4m new shares were issued in the February institutional placement and 11.1m new shares were issued in March under the corresponding Retail Offer. While the purpose of the capital raising was mainly to facilitate the construction of the Tauhara geothermal project it is obvious these new shares did not create " earnings " commensurate with the annual ( or even the final ) dividend, in just three months or so. So not surprising the overall dividend paid on all shares was marginally down.

RTM

20-08-2021, 03:04 PM

fish

20-08-2021, 03:34 PM

see weed

24-08-2021, 12:35 PM

Ex div 26/8/21. :)21c :t_up:

see weed

09-09-2021, 11:08 AM

Tried to sell 2000 CEN with ASB securities, so far 23 transactions to sell 139 shares all under 20 shares per transaction, and 1861 shares to go. I have quickly amended the order.:t_down:. But it's not the fault of ASB.

alex f

08-10-2021, 12:59 PM

Is there a government review being held, regarding the generator market. Stuff mentioned a review due out later this month and it not being so good for the dominant generators.
I can’t seem to out find much about this ( after CNU went to $1.28 years ago after a com com ruling, I worry)
Who’s doing the review? Likely outcomes?

Sideshow Bob

08-02-2022, 08:34 AM

Tauhara Project Update - NZX, New Zealand’s Exchange (https://www.nzx.com/announcements/386902)

No worries when costs go up $140m...........:mellow:

Biscuit

08-02-2022, 11:45 AM

Tauhara Project Update - NZX, New Zealand’s Exchange (https://www.nzx.com/announcements/386902)

No worries when costs go up $140m...........:mellow:

Yes, 20% increase in cost nothing to be sneezed at but some of that is apparently for "increased capacity".

Biscuit

14-02-2022, 08:55 AM

alokdhir

14-02-2022, 09:03 AM

Biscuit

14-02-2022, 09:07 AM

To me it seems they saying instead of cash now they have inventory of gas which is stock ...so no big deal !!

Yes, exactly. But for that to impact cashflow, it must have cost them quite a bit to increase power from the hydro. I'm just a bit surprised that that is the case.

alokdhir

14-02-2022, 09:21 AM

Yes, exactly. But for that to impact cashflow, it must have cost them quite a bit to increase power from the hydro. I'm just a bit surprised that that is the case.

Only cost attached with having inventory is carry cost ie financial interest that should not be much at current rates ...for me nothing much to worry about

turnip

14-02-2022, 01:37 PM

Profit up 70% - great. But operating free cashflow down 17%. Their explanation:

"While operating free cash flow is lower year-on-year, this is a feature of
our generation asset mix. When it rains, operating earnings increase as we
don't have to run more expensive thermal generation, but cash flow is
impacted as we store the gas we purchased for use in the future."

Does that make any sense? I would have thought there would be no significant extra cost in turning up the throttle on the hydro generators?

As I understand it, there are costs to inject the gas into the storage site, and also since Contact doesn't own the storage facilities anymore they would also have to pay some sort of rent for the volume they use. These costs wouldn't have been incurred if they had burnt the gas directly instead of storing it.

Edit: And of course, they are still paying for the gas itself whether it is burned or stored.

Biscuit

14-02-2022, 03:30 PM

As I understand it, there are costs to inject the gas into the storage site, and also since Contact doesn't own the storage facilities anymore they would also have to pay some sort of rent for the volume they use. These costs wouldn't have been incurred if they had burnt the gas directly instead of storing it.....

Thanks Turnip, still seems like a lot of extra cost (aside from the gas, which they pay for anyway). Also, gas storage costs were higher (12M) in the PCP than in this period (11M).

Cyclical

15-02-2022, 08:42 AM

Yeah, probably most of that would be at the First Gas Ahuroa site I assume?

winner69

13-03-2022, 04:11 PM

I don't really know what this means but it sounds interesting -

Geothermal energy NZ – the good news and the bad news

Gary Mersham, PhDClick here to view Gary Mersham, PhD’S profile
Gary Mersham, PhD
Advisor at Verdure, Futurize.io
Published Mar 13, 2022

New Zealand has had a head start in Geothermal energy. The original Wairakei plant in New Zealand, the first large-scale plant in the world, has been operating for over 60 years.

Experimental schemes have been developed in several parts of the World including Europe and Australia. Flow rates achieved and the cost of drilling to such depths has meant that the economics of such schemes are unfavourable here and MBIE commissioned research from 2020 concludes that very unlikely that such projects would become economically feasible in New Zealand.

But they say that there is potential to take up existing technology which has not been widely used New Zealand, but like all energy technologies it will be determined by cost and regulatory environment.

For example, a high carbon tax would make carbon capture and sequestration/storage feasible, but it would disadvantage geothermal plants with higher emission intensities) relative to other renewables such as wind, which have no operational Greenhouse Gas emissions.

New Zealand taking a leading role in controlling deposition of silica and other deleterious minerals in the waste stream, This is the Geo40 process, which produces a commercial silica product currently being trialled in NZ .

So, while the potential for projects outside the known high temperature areas in New Zealand is very limited, but the researchers argue that there is potential for:

*new technology to increase existing geothermal generation capacity

*geothermal generation to be extended to areas outside the existing Rotorua-Taupōand Ngāwhā areas.

*geothermal to generate in a load-following manner, to compensate for intermittency of other electricity sources.

turnip

14-03-2022, 07:07 PM

CEO Mike Fuge on Sharesies' Shared Lunch proramme 10 March 2022:
https://www.youtube.com/watch?v=KwNjqt704jI

He's a good speaker I think, a good mix of casual and knowledgable. Pity about the laggy connection at the beginning, not the best advertisement for Contact's broadband offering.

iceman

30-03-2022, 08:47 PM

Very pleasing to see shares issued today under the reinstated DRP after many years of suspension. Been adding a few here and there on dips under $7.90 . A steady long term hold in my view, particularly given our unstable global and inflationary environment and the DRP just adds a bit to that fairly reliable return and steady dividends.

RTM

25-07-2022, 12:18 PM

fish

25-07-2022, 12:30 PM

Some chit chat....wonder where it goes.

https://www.msn.com/en-nz/news/national/contact-energy-pushed-to-provide-plans-for-clyde-dam-by-early-next-year/ar-AAZUiSR?ocid=msedgntp&cvid=7d822f42d099430398be39cfd99d119b
?another regional council exerting ‘power”-using a 1 in 5 year chance to get cen to spend money locally and getting amenities.
Not that I see anything wrong with it

see weed

28-07-2022, 02:27 PM

Been buying in to CEN for last 6 weeks from 6.95 and looking forward to big div. And ex div in about 4 weeks.

alokdhir

28-07-2022, 05:14 PM

Been buying in to CEN for last 6 weeks from 6.95 and looking forward to big div. And ex div in about 4 weeks.

Whats your expectation of SP before going ex div ...Div most likely will be 21 cents ...Me think 7.80 possible !!

Also u want to sell cum div or ex div for best trading advantage ?

see weed

29-07-2022, 08:06 AM

Whats your expectation of SP before going ex div ...Div most likely will be 21 cents ...Me think 7.80 possible !!

Also u want to sell cum div or ex div for best trading advantage ?
It's a log story, and I haven't got out of bed yet. Which part of NZ do you live? Maybe set up a ST meeting somewhere.

alokdhir

29-07-2022, 08:46 AM

It's a log story, and I haven't got out of bed yet. Which part of NZ do you live? Maybe set up a ST meeting somewhere.

Looks like u dont want to share your strategy ...lol

Dont worry I am not that big player in the market who can skittle your plans by front running u ....:p

see weed

29-07-2022, 11:26 AM

Whats your expectation of SP before going ex div ...Div most likely will be 21 cents ...Me think 7.80 possible !!

Also u want to sell cum div or ex div for best trading advantage ?
At the rate its going, It wouldn't surprise me if it hit $7.80- $8 before ex div day. 2 years ago on the 10/7/20 sp= $5.57c the low for the day. The day before ex div day 25/8/20 sp= $6.46c then on 12/10/20 sp closed at $8.10c. Then on 8/1/21 sp hit $11.16c high for that day and closed at $10.75c, but there was a reason for this big gain over a short time.

alokdhir

29-07-2022, 11:38 AM

At the rate its going, It wouldn't surprise me if it hit $7.80- $8 before ex div day.

Agree ...maybe just needs one good day to catch up ...at present its underperforming the market

Today its looking promising ...close over 7.50 should take it to 7.80 resistance

see weed

29-07-2022, 11:57 AM

Agree ...maybe just needs one good day to catch up ...at present its underperforming the market

Today its looking promising ...close over 7.50 should take it to 7.80 resistance
Go back to my last post, I have edited it with some figures.

alokdhir

29-07-2022, 12:06 PM

Go back to my last post, I have edited it with some figures.

Thanks mate ...I have been enlightened ...:t_up:

It has massive resistance at 7.80 which used to be big support before .

Only over that it will try to reach over 8.10 +

see weed

29-07-2022, 12:14 PM

Thanks mate ...I have been enlightened ...:t_up:

It has massive resistance at 7.80 which used to be big support before .

Only over that it will try to reach over 8.10 +
Good support at 7.50 but close is another story.

see weed

29-07-2022, 04:31 PM

alokdhir, are you watching the depth, something is different today. The one day chart is looking a lot stronger, with no sudden dips as yet. Sometimes it drops back a bit on close.

alokdhir

29-07-2022, 07:25 PM

alokdhir, are you watching the depth, something is different today. The one day chart is looking a lot stronger, with no sudden dips as yet. Sometimes it drops back a bit on close.

It has crossed a major hump of 7.50 ...now surely 7.80 on cards next week .

Volumes were huge as CEN was the only electricity stock not yet crossed its 60 SMA ....it will catch up with others like GNE , MEL and MCY soon

I think $ 8 will be the minimum to expect before results ie 15th August

But if u see the volumes were high only for CEN and MEL not GNE and MCY ....US fund buying ??

Snoopy

04-08-2022, 01:04 PM

I want to update Contact Energy's 'Imputation rate' record, based on the statement that dividend payments will now be based on operating cashflows from the previous four years (NZX Release 15/02/2021).

I thought about what would be the best way to calculate the average imputation rate. Each dividend would have been individually considered by the board, and a decision made on what the appropriate imputation rate should be at each dividend payment time. So I have decided to just average the raw figures, exactly as they were presented to shareholders at the time. An alternative method, that I have chosen not to use, would be to take a weighted average imputation rate attached to each dividend in proportion to the size of that dividend.

Dividend Payment DateAmountDividend Imputed to... {A}Legal Imputed Maximum (B)Dividend Imputation Rate (A)/(B)

09-04-201916cps19.55%28%69.8%

17-09-201923cps20.23%28%72.3%

07-04-202016cps19.55%28%69.8%

15-09-202023cps20.23%28%72.3%

Average71.05%

Proposed 31-03-202114cps22.95%28%82.0%

If we think of the above average already paid dividends as 'predictive', how does such an averaged prediction line up against what is proposed for the dividend to be paid on 30-03-2021? From the half year announcement:

"The Board has approved an interim cash dividend of 14 cents per share which will be imputed up to 9 cents per share for qualifying shareholders, and paid on 30 March 2021."

100% 'Full imputation' means tax is being paid at 28% on the full 14c proposed payout. In fact only 9cps will be fully imputed, with no imputation credits attached to the remaining 5c portion of the proposed dividend. So the gross dividend being paid is:

9/0.72 + 5 = 17.5c

This means the tax paid before shareholders get their dividend is mapped out to be: 17.5c - 14c = 3.5cps

Under an alternative full imputation scenario, the gross dividend would look like: 14c/0.72 = 19.44c. Under this scenario, the tax paid equates to: 19.44c - 14c = 5.44cps

This comparison gives us an imputation rate paid of: 3.5c/5.44c= 64.3%

For a quicker way of doing the same calculation: The imputation rate of the proposed dividend in proportion to full imputation can be calculated straight from the proportion of dividend declared as imputed: 9/14 = 64.3%. That is a little higher than the historical precedent (82% vs 71.05%). This is not surprising, given the next forecast is no longer the 100% 'Operating Free Cashflow' payout that had previously applied to all four dividends since April 2019.

The percentage to which a dividend is imputed makes a great difference to the 'gross yield' on any share. The gentailers are a particular risk here, because their dividends are based on free cashflow, which includes earnings (fully imputed) as well as some depreciation allowance that will not need to be reinvested (not imputed). What does this picture look like over the last four years? I choose four years based on the statement that dividend payments will now be based on operating cashflows from the previous four years (NZX Release 15/02/2021).

I thought about what would be the best way to calculate the average imputation rate. Each dividend would have been individually considered by the board, and a decision made on what the appropriate imputation rate should be at each dividend payment time. So I have decided to just average the raw figures, exactly as they were presented to shareholders at the time. An alternative method, that I have chosen not to use, would be to take a weighted average imputation rate attached to each dividend in proportion to the size of that dividend.

For Contact Energy, the financial year runs from 1st July to 30th June.

Dividend Payment DateAmountDividend Imputed to... {A}Legal Imputed Maximum (B)Dividend Imputation Rate (A)/(B)

18-09-2018
19cps28.00%28%100.0%

09-04-2019
16cps19.55%28%69.8%

17-09-2019
23cps20.23%28%72.3%

07-04-2020
16cps19.55%28%69.8%

15-09-2020
23cps20.23%28%72.3%

30-03-2021
14cps20.00%28%71.4%

15-09-2021
21cps21.00%28%75.0%

30-03-2022
14cps22.00%28%78.6%

Average
76.15%

Readers may notice that the imputation rate has picked up a bit over the last couple of years. However, this is logical when viewed in the big picture of a largely static profit and cashflow market (new capital raising for the new Tauhara geothermal station excepted) combined with a small reduction in the dividend. The more of the dividend that is paid from actual profits, the higher the dividend imputation rate. If you reduce your dividend in a flat earnings environment, then you are reducing that part of the dividend that does not come from profits. That means overall, the imputation rate of any such dividend paid is likely to go up.

Contact's stated new policy of reducing their dividend to 80-100% of operating free cashflow means the higher imputation rates of FY2022 are more likely to continue into the future.

SNOOPY

Snoopy

04-08-2022, 05:19 PM

Time to rework my calculations to consider the new FY2021 dividend policy of paying 80-100% of cashflows. For modelling purposes I will 'split things down the middle' and assume 90% of free cashflows are paid out. Contact have also said they will base their level on dividend payments around the last four years of results So for the purpose of this exercise I will change my timeframe to incorporate this.

FY2017FY2018FY2019FY2020

Cashflows from Operating Activities (1,2)
$508m + $85m$457m + $85m$466m + $85m$390m+$85m

less Stay in Business CAPEX
($116m)($78m)($60m)($52m)

less Net Interest Costs
($92m)($84m)($70m)($55m)

equals Operating Free Cashflow
$384m$380m$421m$368m

Operating Free Cashflow (OFC) x 90%
$346m$342m$379m$331m

Modelled Dividend per Share (based on 805m shares on issue (3))
43cps42cps47cps41cps

EBITDAF-DA-I-T (Normalised NPAT) (4)
$134m + $45m$131m + $45m$175m +$45m$127m + $45m

Normalised eps (based on 805m shares on issue)
22.2cps21.9cps27.3cps21.4cps

(1) From slide 6 of the presentation: "Projected EBITDAF uplift of ~$85m p.a. at wholesale price of $80/MWh" on commissioning of Tauhara.

(2) The definition of 'Operating Cashflows' has slightly changed between FY2019 and FY2020. If you look in the respective 'Cashflow Statements' for AR2019 and AR2020, you will see that 'Operating Cashflow' for FY2019 is listed as $466m in the former and $401m in the latter. Why the difference? In FY2020 the FY2019 figure has been reduced by a net interest figure of $69m -$4m = $65m. In AR2019 the 'interest paid' is reported in 'Financing cashflows' and the 'interest earned' is reported under 'Investing cashflows'. For consistency I am using the earlier definition of cashflows in the above table, with no interest charges deducted or added. This explains why 'Operating Cashflows' for FY2020 are listed as $390m in my table, but only $341m in the FY2020 Integrated Report.

(3) Following the capital raising, I expect the number of shares on issue to jump to 775,709,995 shares. The DRP will further increase the number of shares on issue, I predict at a rate of 2,5% per year (compounding). This will see the total number of shares after four years to increase as folows:

No.Shares

Year 0775,708.995

Year 1795,101,719

Year 2814,979,263

Year 3835,353,744

Total/4 = Average805,285,930

(4) I shall assume with Tauhara commissioned Depreciation will go up by $14m per year (the same jump in depreciation that occurred when Te Mihi was commissioned). There is $180m of new incremental debt funding associated with the building of Tauhara. At a 4.5% borrowing rate, this will increase the annual interest bill by:

$180m x 0.045 = $8m

The projected NPAT increment as a result or Tauhara coming on stream is therefore:

0.72x ($85m -$14m -$8m) = $45m

(This incremental increase in NPAT must ultimately be discounted back because it will not occur for three years time when Tauhara comes on line. I use a 4.5% discount rate, which equates to the long term Gross Yield I am prepared to accept.

1/(1.045)^3 = 0.8763

$45m x 0.8763 = $40m

I have got a bit slack with my overview of results, this post looking at FY2021. The FY2022 result will be released in 10 days. So I plan a rather more prompt review of that.

For those who came in late, a 'scenario analysis' is not an historical record of what happened. Instead it answers the question, what would happen if current dividend policy acted on the historical results of previous years. The purpose of this is to get a measure of how future results might change, if the weather events of the previous four years were superimposed on today's investment policy.

For this analysis I am using the most recent dividend policy (FY2021) of paying 80-100% of cashflows. For modelling purposes I will 'split things down the middle' and assume 90% of free cashflows are paid out. Contact have also said they will base their level on dividend payments around the last four years of results So for the purpose of this exercise, my timeframe is from FY2018 to FY2021 inclusive.

FY2018FY2019
FY2020FY2021

Cashflows from Operating Activities (1,2)
$457m + $85m$466m + $85m
$390m+$85m$475m+$85m

less Stay in Business CAPEX
($78m)($60m)($52m)($75m)

less Net Interest Expense
($84m)($70m)
($55m)($50m)

equals Operating Free Cashflow
$380m$421m
$368m$435m

Operating Free Cashflow (OFC) x 80%
$304m$337m$294m$348m

Modelled Dividend per Share OFC80% (based on 806m shares on issue (3))
38cps42cps37cps43cps

Operating Free Cashflow (OFC) x 90%
$342m$379m$331m$392m

Modelled Dividend per Share OFC90% (based on 806m shares on issue (3))
42cps47cps41cps49cps

EBITDAF-DA-I-T (Normalised NPAT) (4)
$131m + $45m$175m +$45m
$127m + $45m$183m + $45m

Normalised forecast 'eps' (based on 806m shares on issue)
21.8cps27.3cps21.3cps28.3cps

(1) From slide 6 of PR2020: "Projected EBITDAF uplift of ~$85m p.a. at wholesale price of $80/MWh" on commissioning of Tauhara.

(2) The definition of 'Operating Cashflows' has slightly changed between FY2019 and FY2020. This has affected the 'Operating Cashflow' figure that I have used, which from FY2020 is different to that in the latter cashflow statements. In AR2019 the 'interest paid' is reported in 'Financing cashflows' and the 'interest earned' is reported under 'Investing cashflows'. By contrast both are reported in 'Operating Cashflows' in AR2020. For consistency I am using the earlier definition of cashflows in the above table, with no interest charges deducted or added.

(2a) FY2020 'Operating Cashflow' for FY2019 is listed as $466m in AR2019 and $401m in AR2020. Why the difference? In FY2020 the FY2019 figure has been reduced by a net interest figure of $69m -$4m = $65m (Figures relating to FY2019). Applying the same adjustment logic to FY2020, where the net interest paid was $49m, this explains why 'Operating Cashflows' for FY2020 are listed as $390m in my table, but only $341m in the FY2020 Integrated Report.

(2b) FY2021 'Operating Cashflow' adjustment. The net interest figure paid over FY2021 was $43m. This explains why 'Operating Cashflows' for FY2021 are listed as $475m in my table, but only $432m in the FY2021 Integrated Report.

(3) Following the capital raising completed on 12-03-2021, and the subsequent dividend paid on 30-03-2021 (with the DRP operating) on all shares issued (including those raised in the March 2021 capital raising), the number of shares on issue to jumped to 776,122,070 shares at the EOFY2021 balance date. I expect the DRP will further increase the number of shares on issue in the future, I predict at a rate of 2.5% per year (compounding). This will see the total number of shares after four years to increase as follows:

No.Shares

Year 0 (EOFY2021)776,122.070

Year 1795,525,122

Year 2815,413,250

Year 3835,798,581

Total/4 = Average805,714,716

(4) I shall assume with Tauhara commissioned Depreciation will go up by $14m per year (the same jump in depreciation that occurred when Te Mihi was commissioned). There is $180m of new incremental debt funding associated with the building of Tauhara. At a 5.0% borrowing rate, this will increase the annual interest bill by:

$180m x 0.05 = $9m

The projected NPAT increment as a result or Tauhara coming on stream is therefore:

0.72x ($85m -$14m -$9m) = $45m

Tauhara Discount Factor for Future Earnings

This incremental increase in NPAT should perhaps be discounted back because it will not occur for three years time, at the point where Tauhara comes on line. For future discounting of profits, I use a 5.0% discount rate, which equates to the long term Gross Yield I am prepared to accept.

1/(1.05)^3 = 0.8638

$45m x 0.8638 = $39m

SNOOPY

Snoopy

05-08-2022, 07:24 PM

I have reread past dividend paying intentions and compared that to what actually happened. When Contact had their '100% of Free Operating Cashflow' policy, dividends never quite reached that level. That is because the policy was based on 'averaged hydrological conditions'. If the inflows were above average (which they were in FY2019), then the dividend was not increased. Keeping this in mind, I have created a third possible iteration of future events where dividends are capped at 41cps (This reflects the period after Tauhara has been commissioned remember). Despite the dividend reduction, I expect this iteration will show increased returns to shareholders. This is because the unimputed portion of the dividend will be reduced. The way I have done my analysis, unimputed portions of dividends reduce shareholder returns, because of the extra tax incurred by such payments.

I continue to use my model based on just the last four years of operations.

1/ The 'Scenario 'Dividend Per Share' and 'Scenario Earnings Per Share' columns (from my post 1978) represent a prediction of an ongoing dividend of 90% of free cash flow being paid into the foreseeable future, but now capped at 41cps. The FY2021 forecast, under the same policy of paying out 80-100% of free cashflow, is 35cps. This is somewhat less than my four forecast scenarios where dividends are 41cps. However these scenarios reflect a future where Tauhara is operational which should provide an incremental boost to Contact's profitability. I also note that in the current forecast year, the proposed dividend of 35cps is a figure towards the lower end of the 80-100% cashflow payment range. I therefore do not consider the modelled dividend payout to be unrepresentatively high, once Tauhara is up and running.
2/ The (A) - (B) difference column, if negative, represents the amount of the projected dividend not covered by imputation credits. This is important, because a dividend paid without imputation credits is in accounting terms, equivalent to giving shareholders their own capital back (equal to the amount of the unimputed dividend) complete with a tax bill. This is generally bad for investors. It is necessary to make a negative adjustment to account for any expected tax to be paid on the unimputed dividend component (Column (D).
3/ The capital component of the dividend is the portion of shareholder equity being returned to shareholders. This will need to be removed from the dividend return calculation. Because to pay it is to return to shareholders money on the balance sheet that they already have, so it isn't a shareholder benefit.
4/ The unimputed component tax bill column, represents the income tax charged on share capital that is expected to be paid by the shareholder. A 28% tax rate is assumed. Note that if the (A)-(B) difference were to be positive then there would be no extra tax bill. That's because in such a year, the dividend would be 'fully imputed'.
5/ The final 'Difference Column' represents the 'effective' dividend per share, adjusted for any extra tax obligation from paying tax on unimputed distributions.

Scenario Basis Financial Yeareps (A)Scenario dps (B)Difference (A)-(B)Divie Capital Component (C)Unimputed Tax Bill (D)Difference (B)-(C)-(D)

201722.2c41.0c-18.8c18.8c5.3c16.9c

201821.9c41.0c-19.1c19.1c5.3c16.6c

201927.3c41.0c-13.7c13.7c3.8c23.5c

202021.4c41.0c-19.6c19.6c5.5c15.9c

Total89.8c (E)164.0c (F)72.9c

Business Cycle Imputation Rate (E)/(F)54.76%

.

The expected average dividend per year, net of tax is therefore: 72.9 / 4 = 18.2cps (net)

Using a tax rate of 28c this is equivalent to a gross income of: 18.2cps /(1-0.28) = 25.3c

Now we come to a critical point in this analysis - the choosing of an indicative interest rate that allows us to value Contact on the basis of being an ongoing income stream. I have previously used a figure of 5.5%. But that was in a climate of investment interest rates of some 3.5%. Interest rates have fallen by at least 200 basis points since then. OTOH the Tiwai Point aluminium smelter is likely on a three year wind down closing path. The power market is consequently in a state of flux as whether an energy intensive replacement industry like hydrogen fuel production, will arrive. If not, there is work to be done, by Transpower, to ensure Contact will be able to extricate the consequential surplus energy from their Clutha River power stations at Clyde and Roxburgh. The 'transmission north' constraints need to be relieved. There is also uncertainty as to how Tauhara will feed into the mix of competitors' new wind farms that are due to come on line within a similar construction timeframe.

To balance these competing factors, I have assessed that a gross return of 4.5% is an acceptable return from a shareholder perspective, investing in Contact Energy's assets.

Dividends can only be imputed to the extent that tax credits are being and have been generated. The bulk of the Contact tax credits on the books came about in FY2016, because of $204m of impairments net of tax relating to the closure of the Otahuhu Power Station, an assessment that the Taheke Geothermal field is unlikely to be developed in the foreseeable future (from a June 2016 perspective) and a 'write down' in the value of inventory gas. I have calculated above that $63m of those tax credits have been used up (post 1806) , which means that $97m - $63m = $34m are yet to materialise. That means there are probably two years worth of 'Superimputed dividends' for Contact Energy shareholders to come. What value of superimputation is appropriate? I am going with the average that I calculated in the early part (post 1799) of this valuation exercise of 71.64% as a figure that is now appropriate for Contact Energy. Nevertheless my forecast period is from 2023 onwards. By that time I have to assume all of those remaining $34m of tax credits that are funding 'superimputed dividends' to be used up. That means I expect future tax credits to come out of this historical shadow and revert to reflecting operational performance.

If we assume that a business cycle investment 'gross return' of 4.5% is required, then this equates to a CEN share price of:

25.3c /0.045 = $5.62

So $5.62 is therefore 'fair value'. However, this is fair value in the future, three years hence when Tauhara is up and operating. We need to discount this back using an appropriate 'time value of money' factor. This I calculated in post 1978 to be 0.8763.

0.8763 x $5.62 = $4.92

Readers should note that $4.92 represents 'business cycle neutral' fair value. We could argue that we are currently, keeping in mind the increasing ten year bond rate, descending from the top of a low interest rate inspired valuation cycle. My rule of thumb would suggest a 'top of cycle' value some 20% higher than my calculated fair value. However, given we may have passed the interest rate low, I am reducing my interest rate cycle premium from 20% down to 15%

$4.92 x 1.15 = $5.66

Contact Energy is trading at $6.77 as I write this post. This technique would suggest that Contact Energy is now still 17% overvalued (above fair valuation), but not out of line with the broad overvaluation of the NZX as a whole.

But does a 'capitalised dividend valuation' give the full picture? This is a 'no growth valuation', so maybe not!

Contact with their '80%-100% of Free Operating Cashflow' looks, in practice, to be paying dividends towards the bottom of their indicated range. I believe this is because the policy was based on 'averaged hydro-logical conditions'. If the inflows were above average (which they were in FY2019), then the dividend was not increased. My modelled future dividend scenario is that dividends will be capped at 37cps (This reflects the period after Tauhara has been commissioned remember). Over FY2022 dividends paid during that period amounted to 35cps.

I continue to use my model based on just the last four years of operations.

1/ The 'Scenario 'Dividend Per Share' and 'Scenario Earnings Per Share' columns (from my post 2198) represent a prediction of an ongoing dividend of 80% of free cash flow being paid into the foreseeable future, but now capped at 37cps.

The FY2021 actual dividend payment, under the same policy of paying out 80-100% of free cashflow, was 35cps. This is somewhat less than my four forecast scenarios where dividends are 37cps. But these scenarios reflect a future where Tauhara is operational which should provide an incremental boost to Contact's profitability. I do not consider the modelled dividend payout to be unrepresentatively high, once Tauhara is up and running.

2/ The (A) - (B) difference column, if negative, represents the amount of the projected dividend not covered by imputation credits. This is important, because a dividend paid without imputation credits is -in accounting terms-, equivalent to giving shareholders their own capital back (equal to the amount of the unimputed dividend) complete with a tax bill. This is generally bad for investors. It is necessary to make a negative adjustment to account for any expected tax to be paid on the unimputed dividend component (Column (D).
3/ The capital component of the dividend (Column C) is the portion of shareholder equity being returned to shareholders. This will need to be removed from the dividend return calculation. Because to pay it is to return to shareholders money on the balance sheet that they already have, so it isn't a shareholder benefit.
4/ The unimputed component tax bill (Column D), represents the income tax charged on share capital that is expected to be paid by the shareholder. A 28% tax bill from the value calculated in Column C is assumed. Note that if the (A)-(B) difference were to be positive then there would be no extra tax bill. That's because in such a year, the dividend would be 'fully imputed'.
5/ The final 'Difference Column' represents the 'effective' net dividend per share, adjusted for any extra tax obligation from paying tax on unimputed distributions.

Scenario Basis Financial Yeareps (A)Scenario dps (B)Difference (A)-(B)Divie Capital Component (C)Unimputed Tax Bill (D)Difference (B)-(C)-(D)

201821.8c37.0c-15.2c15.2c4.3c17.5c

201927.3c37.0c-9.7c9.7c2.7c24.6c

202021.3c37.0c-15.7c15.7c4.4c16.9c

202128.3c37.0c-8.7c8.7c2.4c25.9c

Total98.7c (E)148.0c (F)84.9c

Business Cycle Imputation Rate (E)/(F)66.69%

.

The expected average dividend per year, net of tax is therefore: 84.9 / 4 = 21.2cps (net)

Using a tax rate of 28c this is equivalent to a gross income of: 21.2cps /(1-0.28) = 29.4cps

Now we come to a critical point in this analysis - the choosing of an 'indicative interest rate' that allows us to value Contact on the basis of being an ongoing income stream.

SNOOPY

Snoopy

06-08-2022, 10:42 AM

In this post my 'modelled' imputation credits paid payments are actually the real payments that must have been handed over to IRD, to allow a dividend to be paid with that specified level of imputation credits attached. The actual tax declared I have taken from the representative 'Statements of Comprehensive Income'. I am reporting in half year periods. The tax declared in the second half (calendar year period from 1st January to 30th June) has been worked out by taking the tax paid for the full year and subtracting that paid in the first half.

My Post 2197 covers the period after the Contact Energy imputation credit balance was exhausted, by the paying of a 'special dividend' (from 23-06-2015). The following table has evolved from information presented in that post. It should be no surprise to see the first dividend to be paid after the imputation credit clean out, the first line in the table, has no imputation credits attached as a result. Not only was no income tax paid by Contact Energy over that period. The company received a $51m income tax credit.

The second line of the table shows a dividend being paid with $19m of imputation credits attached, against an actual tax liability over the period of only $11m. I don't understand how attaching such a large imputation credit to the dividend payment is possible, unless:

a/ Contact have stumped up with a $8m 'tax paid in advance' payment to the IRD to make up the difference (but the cashflow statement from FY2016 shows $1m of tax received and no tax paid- let alone 'extra tax' paid in advance). OR
b/ All of that "declared in the prior period $51m tax credit" has found its way into Contact's imputation account.

The second explanation looks more likely, because the sum of imputation credit tax paid from 23-06-2016 onwards exceeds the declared income tax liability for the same period - by $42m. And $51m of potential extra income tax credits more than makes up for this difference. However, if my second explanation is correct, then why was the dividend declared on 23-06-2016 not fully imputed (that $51m tax refund should have ensured there were plenty of imputation tax credits available in the tax credit bucket)? An unsolved mystery?

If indeed the tax refund from HY2016 has been treated as a 'tax credit' for imputation purposes (I still have my doubts about that because imputation credits are normally only issued for actual tax paid) then the income tax differences over the 14 half year periods come down to:

$432m - ($389m + $51m) = ($8m)

It is at least conceivable that Contact may have overpaid their tax by $8m at balance date, because a forecast decrease in profit in FY2022 may result in the provisional tax already paid being greater than the final forecast tax bill.

Dividend Payment Date
Net Amount
Dividend Imputation Rate
Gross Dividend Divisor
Imputed Dividend Tax Paid {A}
Half Year Period Income Tax Declared {B}
Tax paid less Tax Declared {A}-{B}

25-09-2015$110m0%
1.0$0m
($51m)$51m

23-06-2016$79m70.9%0.8015
$19m (2)$11m$8m

a specified
23-09-2016$107m54.9%0.8463$19m$38m
($19m)

17-03-2017$79m78.7%0.7796$22m$21m
$1m

19-09-2017$107m100.0%0.72$42m$24m
$18m

06-04-2018$93m100.0%0.72$36m$17m
$19m

18-09-2018$136m100.0%0.72$53m$43m
$10m

09-04-2019$115m69.8%0.8046$28m$26m$2m
to

17-09-2019$165m72.3%0.7976$42m$26m$16m

julie

07-04-2020$115m69.8%0.8046$28m$20m$8m

15-09-2020$165m72.3%0.7976$42m$32m$10m

30-03-2021$109m71.4%0.8001$27m$42m($15m)

16-09-2021$163m75.0%0.7900$43m$53m($10m)

30-03-2022$109m78.6%0.7799$31m$36m($5m)

Average72.41%

Total 23-06-2016 Onwards

$432m$389m
$43m

Notes

1/ The 'gross dividend divisor' column is calculated according to the method explained in my post 1796.
.
2/ A sample calculation to derive the amount of tax that has to have been paid to satisfy the imputation credit attached to the dividend paid on 23-06-2016 is shown below.

Imputation tax payment = ($79m / 0.8105) - $79m = $18.5m (=$19m to two significant figures)

-----------------------

This post is based on actual declared dividend payouts, and the tax paid implications from those payouts and company declared tax (not the derived tax from my 0.28x (EBITDAF - DA -I) calculation, such as in my post in post 1804). However, actual earnings are subject to various one off earnings blips (both up and down) from non core transactions that are not reflective of core business activity into the future.

A new phenomenon in the table above is that -looking at the last three dividends-, Contact have paid less tax as declared through the imputation credits attached to each of the three dividends, compared to the actual underlying income tax paid by Contact over the same period. It looks like Contact could have declared those three dividends with a higher percentage imputation rate than they did. Why they did not declare the largest extent of imputation credits they were entitled to declare on those three dividends I find very puzzling! But it does mean that Contact get to 'roll over' $32m of imputation credits into future years (if my reasoning behind constructing the above table is correct).

SNOOPY

Snoopy

07-08-2022, 04:48 PM

Now we come to a critical point in this analysis - the choosing of an 'indicative interest rate' that allows us to value Contact on the basis of being an ongoing income stream.

MacroEnvironmental Effect 1/ I have historically used an indicative interest rate figure of 5.5%. Since that time, interest rates have plunged to around 1%, before spiking sharply higher again (although not up to pre Covid-19 price expectations) in an effort to quell inflation.

MacroEnvironmental Effect 2/ Rapid rises in the price of aluminium has seen the Rio Tinto owned Tiwai Point aluminium smelter re-enter negotiations with Meridian and Contact. This will likely see aluminium smelting continue beyond the previously signalled FY2024 date for winding down of smelting in Southland. It will also likely see power price rises as alternative industries, like making hydrogen fuel, provide a competitive Southland based power hungry manufacturing alternative, should arrangements with Rio Tinto be unable to be concluded. Thus I see the future of electrical energy use in Southland as now being more certain, and continuing at an increased price. That will benefit the power industry in NZ generally, and Contact and Meridian, that currently have direct power supply contracts with Tiwai, in particular.

Considering these two macroenvironmental inflences, I have assessed that a gross return of 5.0% is an acceptable return from a shareholder perspective, investing in Contact Energy's assets today.

Post 2200 indicates that $43m worth of unused imputation credits may be on the Contact energy books going into FY2023. I have previously coined the term 'super-imputed' as describing future dividends that utilise such imputation credits. Imputation credits not earned during the year, but on the books to be used at some point nevertheless.

$43m represents $43m/0.28= $154m worth of profits before tax or $154m-$43m = $111m of net profit after tax. On a per share basis that represents

$111m / 776m = 'earnings per share' of 14.3cps

This is the quantum of dividend payment in the future that we shareholders can expect to be 'super-subsidized' above and beyond declared earnings. Once these excess imputation credits are used up, then I expect future tax credits to come out of this historical shadow and revert to reflecting operational performance (NPAT).

Valuing the Share

If we assume that a business cycle investment 'gross return' of 5.0% is required, then this equates to a CEN share price of no more than:

29.4c /0.05 = $5.88

So $5.88 is therefore 'fair value' on a 'whole of business cycle' dividend basis.

We need to discount from this $5.88 - by a factor - the earnings from the as yet uncompleted Tauhara geothermal power station. We need to discount these earnings back using an appropriate 'time value of money' factor. We need to remember that this discount only applies to the incremental value of the earnings from the new Tauhara project, not all of Contact's earnings. Tauhara is now expected to be operational in the second half of FY?2023 (08-02-2022 Press Release). This means it will be fully operational over FY2024. Taking an FY2021 perspective, FY2024 is three years into the future. Thus the discounting factor that I calculated back in post 2198 over 3 years -to be 0.8638- is appropriate.

EBITDAF-DA-I-T (Normalised NPAT) for the four years under consideration for dividend forecasting -excluding Tuahara- , (again from post 2198) were $131m, $175m, $127m and $183m. I make the four year average $154m. Tauhara is a geothermal station, and so will likely operate as base load generation, with energy output not varying much over the years. This means that over the business cycle, Tauhara should lift Contact Energy profits by:

$45m/$154m= 29.2%

Or looked at another way, from FY2024, Tauhara will be generating electricity supplying $45m/($154m + $45m) = 22.6% of Contact Energy profits (on average), compared to 77.4% of the .profits emerging from the rest of the Contact generation portfolio.

This means I need to adjust my fair value income yield valuation for Contact Energy as follows.

(0.774)($5.88) + (0.226)($5.88)(0.8638) = $5.70

The above valuation is effectively a 'no growth' valuation, that does not take into account any rises in value of the existing underlying power generation assets above book value. Increases in the value of power generation assets above book vale are a measure of the incremental discounted value of future cashflows, which feed from higher profits from existing generation assets. These higher profits are caused by legacy generation with low operating costs selling power into an ever higher average power price market. Contact Energy chooses not to increase the value of existing generation assets on the books annually (but competitor Mercury Energy does). However, I believe that to truly reflect the growth value of the Contact Energy generation portfolio, it is necessary to do this. So 'generation asset revaluation' is the next additive part of this Contact Energy share valuation exercise.

SNOOPY

Snoopy

07-08-2022, 09:09 PM

(0.774)($5.88) + (0.226)($5.88)(0.8638) = $5.70

The above valuation is effectively a 'no growth' valuation, that does not take into account any rises in value of the existing underlying power generation assets above book value.

Increases in the value of power generation assets above book vale are a measure of the incremental discounted value of future cashflows, which feed from higher profits from existing generation assets. These higher profits are caused by legacy generation with low operating costs selling power into an ever higher average power price market. Contact Energy chooses not to increase the value of existing generation assets on the books annually (but competitor Mercury Energy does). However, I believe that to truly reflect the growth value of the Contact Energy generation portfolio, it is necessary to do this. So 'generation asset revaluation' is the next additive part of this Contact Energy share valuation exercise.

Contact Energy generation assets that have a significant unbooked premium on their book value are the hydro assets at Clyde and Roxburgh. We can estimate the quantum of this from similar increases in hydro station value that were booked by competitor Mercury Energy (see post 1878). The rising value of future cashflows, that increase the relative worth of long lived legacy power generation assets is an additional 'return' for which I have previously coined the term 'thin air capital'. That sounds ethereal, and is to the extent that this 'capital' appears solely on the expectation of power prices rising. However, although the short term power prices at the wholesale level go up and down, long term power prices go up and up. So in practice I have never seen any of the Mercury Energy declared new 'thin air capital' on their hydro generation assets ever vanish, even if theoretically it could.

The 'thin air' capital growth for Mercury hydro assets is shown below. Both Mercury and Contact operate in the same electricity market. That is why I consider the thin air capital accumulated by Mercury as an indicative factor to use for the thin air capital accumulated (but not recognised) by Contact management over that same period. Information in the table below is derived from posts 1349 and 1308 in the Mercury thread.

Mercury EnergyReval. Hydro & Thermal Assets ($m)Reval. Geothermal & Other Generation Assets ($m)Total Revalued Generation Assets

2015355142497

20168255137

201705252

201805555

201915199250

202025343296

2021550388938

Total1,391

That $1,391m of thin air incremental capital raised was based on a total hydro generating capacity of 1059MW (Post1347, Mercury Thread). The total Contact Energy hydro electric generation capacity is 784MW (my post 1514). So I can determine my 'best guess' at the thin air capital accumulated by Contact Energy subsequent to the FY2014 balance date by ratio:

$1,391m x 784MW/1059MW = $1,030m

New Capital projects are funded by a combination of debt and equity. If we take a 54% equity ratio going forwards as 'acceptable' (see post 2205), then this $1,030m of new 'thin air' equity could in theory fund capital projects to the tune of:

$1,030m / 0.54 = $1,907m

Take the project capital needed to complete Tauhara out of that total, and new incremental project capital is reduced to:

$1,907m - $818m = $1,089m.
Now 1,089/818= 1.33. And 168MW x 1.33 = 223MW

Theoretically, add in a new companion bond program, and it means I can see equity capital for another Tauhara sized field geothermal station (actually a geothermal station 33% bigger) as being available right now.

A new 223MW power station would lift operational generating capacity by 22.5% (ref post 2206)

This raises my 'fair value' of Contact Energy, based on my steady state income valuation, by 22.5%

$5.70 x 1.225 = $6.98

CEN closed on the market on Friday at $7.68, which makes it 10% overvalued by my way of looking at things. None of this takes account any sentiment that will flow from the imminent announcement of the FY2022 results and dividend to be announced.

SNOOPY

discl: holder

nztx

07-08-2022, 11:18 PM

1. approx 12 months ago - wasn't there something that looked likely to affect forward earnings - Snoopy?

2. I note you state Mercury is booking revaluation gains - but they are 100% fully imputed on dividends (since 2013) by my notes.

Whereas Genesis are 80% imputed in their distributions, since early 2016 by my notes. Is there some other reason why GNE don't have tax credits to fully impute their distributions ? (ie amortisation / depreciation rates differing for tax & accounting purposes or something else ?)

alokdhir

08-08-2022, 07:25 AM

CEN is underperforming the electric basket of MCY / MEL / GNE etc by a wide margin

Hopefully it will catch up around its results time .

CEN dividend is lopsided towards this distribution while others have equal distributions ....so it should be doing better in anticipation of 21 cents payout

Last week electric utility stocks were up 4.1 % while CEN was flattish ....MCY was the leader

Snoopy

08-08-2022, 09:28 AM

With interest rates headed for unprecedented lows, I may have to revise my opinion on what equity ratios that I think of are acceptable, Yet the picture at Contact over the last eleven years has been unexpectedly consistent.

Equity (A)Assets (B)Equity Ratio (A)/(B)

FY2010$2,777m$5,148m0.5394

FY2011$3,236m$5,643m0.5735

FY2012$3,418m$6,112m0.5592

FY2013$3,537m$6,197m0.5708

FY2014$3,582m$6,186m0.5790

FY2015$3,171m$6,089m0.5208

FY2016$2,823m$5,652m0.4995

FY2017$2,778m$5,455m0.5093

FY2018$2,727m$5,311m0.5135

FY2019$2,782m$4,954m0.5616

FY2020$2,621m$4,896m0.5353

FY2021$2,927m$5,028m0.5821

FY2021.5$2,951m$4,978m0.5928

It is interesting to once again review the equity ratio of Contact Energy over the years. The improvement in the last two table entries above can be put down to the cash issue of 12th March 2021. Co-incidentally, that time also corresponded to the nadir point of NZ interest rates. So it makes sense to have a bit more equity on hand, in relative terms, as interest rates start to rise again. But the likelihood of interest rates rising was not the reason for the cash issue. I quote from the cash issue retail offer document p5.

"On 15th February 2021, Contact announced its commitment to developing the 152MW Tauhara Geothermal Project (Tauhara) as well as plans to raise approximately $400m of new equity."

On 8th February 2022 we got a Tauhara project update

"Contact Energy says the development of the new Tauhara geothermal power station near Taupō is progressing well and is now expected to generate 168 megawatts, up from 152 megawatts when the investment was announced a year ago.
Contact CEO Mike Fuge said Tauhara would generate more renewable electricity than was initially forecast. “The way the power station has been designed means there is flexibility to deliver a higher generation capacity. Given that the reservoir of geothermal fluid is more productive than initially anticipated, we now expect to be able to deliver to the full design potential.”

"He said the “excellent news” about the increased capacity was tempered by an increase in the overall costs of the Tauhara development, with project costs now expected to total $818m, up $140m from the initial estimate of $678m.
“Obviously there are increased costs associated with the expansion in capacity and some of the complexities associated with delivering this increased capacity, but like every project across New Zealand we have some serious headwinds from the Covid19 pandemic to navigate which have impacted project costs." "

These numbers lead me to a couple of 'back of the envelope' calculations:

$400m (new equity)/ $678m (new assets) = an incremental Tauhara equity ratio of 59.00%

$400m (new equity)/ $818m (new assets) = an incremental Tauhara equity ratio of 48.90%

This means that with the original project costings, the overall company equity ratio remains steady. But with the new costings, the overall CEN equity ratio goes down.

CEO Mike Fuge noted in AR2021 (page 6) that:
"The capital raise gives us the flexibility to execute on up to $800m in additional projects beyond Tauhara."

The $140m cost increase at Tauhara presumably means the 'flexibility to fund additional capital projects' is now reduced to $800m - $140m = $660m

SNOOPY

Snoopy

08-08-2022, 10:46 AM

Contact Energy HydroStation Generation CapacityNotes
Contact Energy GeothermalStation Generation Capacity
Notes

Clyde464MWCommissioned FY1992
Ohaaki48MWCommissioned FY1989

[/TR]

Roxburgh320MWCommissioned 1956Te Huaka28MWCommissioned FY2010

Wairakei145MWCommissioned 1958, Modified FY2005

Tauhara168MWCommissioned 2023 (hopefully)

Poihipi65MWCommissioned FY1997

Te Mihi166MWCommissioned FY2014

Total784MW

Total620MW

Effective Capacity Factor0.514Effective Capacity Factor0.850

Total Operationally Adjusted
403MW
Total Operationally Adjusted527MW

Notes

(1) With a new geothermal station, I would expect somewhere near a 94% capacity utilisation factor. However I have chosen overall capacity utilisation factor at 85% for existing plant, because I expect the capacity utilisation of some of the older geothermal plant to decline.

Adding a new geothermal station of 223MW (beyond the Tauhara station) that would operate at 94% availability would lift Contacts expected operating generating capacity by:

(223MW x 0.94) / (403MW + 527MW) = +22.5%

In case you are wondering whether future growth is just 'pie in the sky', it is modern practice to contract out generating capacity before a new plant is built. In the case of Tauhara (yet to be commissioned) half of the output is already sold to Genesis Energy and various PPAs (Power Purchase Agreements).

Also the limited carbon emissions from geothermal are usually pure, which means carbon capture technology is looking very promising in geothermal applications.

SNOOPY

Snoopy

08-08-2022, 11:59 AM

1. approx 12 months ago - wasn't there something that looked likely to affect forward earnings - Snoopy?

While preparing my posts of the last few days, I went through Contact's presentations to look for their NPAT and EBITDAF earnings projections. They seemed very coy about what was happening in FY2022. They mentioned movements in depreciation charges and other costs, but nothing that spelt out a forecast bottom line for FY2022.

Perhaps you were thinking about the Tiwai point power contract? Or maybe it was the costs incurred with getting Tuahara underway?

2. I note you state Mercury is booking revaluation gains - but they are 100% fully imputed on dividends (since 2013) by my notes.

Whereas Genesis are 80% imputed in their distributions, since early 2016 by my notes. Is there some other reason why GNE don't have tax credits to fully impute their distributions ? (i.e. amortisation / depreciation rates differing for tax & accounting purposes or something else ?)

[cynic mode]
Genesis do not have the capability to fund the building of new power stations themselves, because the government will not tip any more money into a Genesis investment pot. So rather than 'plan to reinvest' in their own assets as they depreciate, they have 'given up' and are feeding that 'depreciation money' straight to shareholders as an unimputed dividend instead. This placates investors into thinking they are 'getting a good yield' and that this dividend policy is sustainable. When the last of Genesis's own power stations wear out and Kupe has run dry, they will have fully transformed into being a 'middle man' in the power market system.

Genesis will buy power from power stations that are owned by others, and battle in the market to match those fixed power purchase deals to the demands of the increasingly fickle consumer. The fixed price deals on the purchase side will see them become increasingly uncompetitive with the remaining gentailers that can adjust their generation to market demand. Thus we will see the slide of Genesis Energy into oblivion.

I would give Genesis ten years before the Genesis rump becomes an unsustainable business. So I would say if Genesis is trading at a PE of more than 10, then they are trading on future earnings that will likely never exist. Be careful out there if you hold Genesis Energy shares.
[/cynic mode]

SNOOPY

Snoopy

09-08-2022, 10:19 AM

Snoopy

Here's an interesting thought experiment.

IF EV = MC + D - C
but for a shareholder:
Investment Value = MC% - Debt + Cash

where MC% is the % of the business they own x MC which = Number of shares x SP;
Debt is any debt used to fund the purchase of the investment (hopefully nil for sensible shareholders!), and
Cash is what is in the investors pocket from (nett) historic dividends.

Notice EV has +D-C and IV has -D+C.

So to my point in my previous post, whatever method you use depends on the viewpoint and agenda.

The post above is the tail end of a discussion that I was having with Ferg in February 2021 about the different ways of valuing Contact Energy, from a 'company' and from an 'investor' perspective. The result of this discussion is that we both agreed there are different approaches to valuing Contact Energy and the most important thing is to be consistent in your valuation approach.

From the 'Company perspective' we might consider 'Enterprise value' as a suitable measuring stick:
Enterprise Value = Market Capitalisation - Company Debt + Company Cash On Hand

From an individual shareholder perspective, a better measure might be:
Investor Value = % Market Capitalisation - Investor Debt + Cumulative cash from all dividends received

Here '%Market Capitalisation' represents the current value of an investors individual shareholding, and 'Investor Debt' is debt taken on to buy that shareholding (if any).

Fergs observation

"Notice EV has +D-C and IV has -D+C."

is an interesting juxtaposition of stakeholder viewpoints. However, writing in that glib shorthand has lost an important part of the message. Namely that the 'D' and the 'C' from the 'Enterprise Value' perspective and 'Investor Value' perspective are not the same thing.

The 'Ds' have no connection at all. The debt that a company takes out to build their business is completely unconnected to the amount of money a shareholder might borrow to acquire the same company shares 'on market'.

The 'Cs' are connected in that they come from the same source - the cash generating activity of the company. But if you imagine all the cash generated by a company going into a bucket, the 'C' from an Investor value perspective is the amount of cash that has been tipped out of the bucket, where as the C from an Investor Perspective is the amount of cash that remains inside the bucket.

Ferg is looking at 'Investor Value' from an individual investor perspective. But I think for comparative purposes it is more useful to look at the 'Investor value' of all investors in the company, brought together as a group.

With all of this in mind, I have rewritten Ferg's two algebraic equations as below:

From the company perspective:
EV = MC + CD - CC (where CD = Company Debt and CC = Company Cash)

From the collective shareholder perspective:
IV = MC - SD + SC (where SD = Shareholder Debt and SC = Shareholder Cash)

And we have an implied third equation as well:
SGC = CC + SC (where SGC = Shareholder Generated Cash)
(Shareholder generated cash is all the cash that ever went into the 'cash bucket' in my bucket analogy.)

Using that third equation, and assuming no shareholder debt, I can rewrite the first two equations as follows:

EV = MC + CD - (SGC-SC) = MC +SC + CD - SGC

IV = MC + SC

From that, I think it is obvious there are two fundamental differences between 'Enterprise value' and 'Investor value'

1/ Company debt does not have any direct effect on 'Investor value'.
2/ Total cash generated over the time a company has existed does not have any direct effect on 'Investor Value'.

In fact from an 'Investor Value' perspective, the only two things that matter are the 'share price' and the 'dividend stream'. Some would say that the 'share price' is merely a present day representation of the discounted valuation of future cashflows anyway.

If we accept that gentailer dividends are based cashflows rather than earnings in the traditional sense, we can then make a 'grand aggregation conclusion'. Namely that the total 'Investor Value' of Contact Energy is based entirely on cashflows, and nothing else. If that is true, then it follows that from an 'Investor Value' perspective we must take account of 'tax paid' when doing our company valuation. That is because 'tax' is that part of the cashflow from Contact Energy that we shareholders do not get.

SNOOPY

P.S. Sorry for the long algebraic rant. But it was necessary to prove to myself that treating tax as I do, as in post 2199, is necessary to obtain a correct 'Investor Value' valuation of Contact Energy.

Snoopy

09-08-2022, 07:15 PM

[cynic mode]
Genesis do not have the capability to fund the building of new power stations themselves, because the government will not tip any more money into a Genesis investment pot. So rather than 'plan to reinvest' in their own assets as they depreciate, they have 'given up' and are feeding that 'depreciation money' straight to shareholders as an unimputed dividend instead. This placates investors into thinking they are 'getting a good yield' and that this dividend policy is sustainable. When the last of Genesis's own power stations wear out and Kupe has run dry, they will have fully transformed into being a 'middle man' in the power market system.

Genesis will buy power from power stations that are owned by others, and battle in the market to match those fixed power purchase deals to the demands of the increasingly fickle consumer. The fixed price deals on the purchase side will see them become increasingly uncompetitive with the remaining gentailers that can adjust their generation to market demand. Thus we will see the slide of Genesis Energy into oblivion.

I would give Genesis ten years before the Genesis rump becomes an unsustainable business. So I would say if Genesis is trading at a PE of more than 10, then they are trading on future earnings that will likely never exist. Be careful out there if you hold Genesis Energy shares.
[/cynic mode]

Finally got around to listening to the March 2022 Mike Fuge Sharsies interview that has been referenced on this thread before.

https://www.youtube.com/watch?v=KwNjqt704jI

Explaining why things are going to get difficult for thermal power generation plant, selective quotes are below:

**From 21 minutes into the interview and talking about power input prices, and how they have changed since the Russian Ukranian invasion.**

"The most interesting thing is the spike in price of coal from $US100/ton plus carbon charges to $US400/ton (edit price has fallen back to around $US320/ton as at early August). In the NZ energy system, normally coal gets dispatched after renewables and gas provides the marginal pricing. Now coal has flipped over the top of that and that $US400/ton is the marginal dispatch cost. That could lead to quite a bouncy winter."

"For oil we are going to be in for an extended period of high prices. For us if we are dispatching gas and even coal which has rocketed through the roof, it is going to put a strong incentive to really accelerate those renewable energy projects which we have., which is a good thing in the longer term. It is just going to be a bit painful in the shorter term."

"Retail electricity prices will plateau as more renewable energy generation is built and the wholesale market has a chance to stabilize again."

"In the wholesale market some industries have been caught out. I tend not to have a lot of sympathy for them for two reasons.

1/ We have been offering long term tenure PPAs (Purchase Power Agreements) at very sharp prices, in that same period of the rapid spike in wholesale prices.
2/ A lot of those wholesale customers, on the other side of the ledger are experiencing a boom in commodity prices."

"If your marginal coal is $400,the if you are having to dispatch oil or diesel generated electricity, it is going to be expensive. The best thing you can do is to respond to that price signal and build more renewable generation."

"If you were just squirreling the energy profits away, there might be a slight ethical issue there"
"But if you are taking windfall energy profits and investing it as we are, in new renewable energy projects, that is a very virtuous cycle."

"Our earning performance over the next three years, particularly as Tuahara comes on, we expect to remain very strong. We are effectively replacing our thermal fleet with a cost between $90-$150/MWh (monthly average) and replacing that with a geothermal generation that has a marginal cost of $18/MWh (monthly average). That underpins profit growth"

Note that $100/MWh = 10c/kWh

SNOOPY

Snoopy

09-08-2022, 09:33 PM

"The most interesting thing is the spike in price of coal from $US100/ton plus carbon charges to $US400/ton (edit price has fallen back to around $US320/ton as at early August). In the NZ energy system, normally coal gets dispatched after renewables and gas provides the marginal pricing. Now coal has flipped over the top of that and that $US400/ton is the marginal dispatch cost. That could lead to quite a bouncy winter."

"Our earning performance over the next three years, particularly as Tuahara comes on, we expect to remain very strong. We are effectively replacing our thermal fleet with a cost between $90-$150/MWh (monthly average) and replacing that with a geothermal generation that has a marginal cost of $18/MWh (monthly average). That underpins profit growth"

Note that $100/MWh = 10c/kWh

The above from Mike Fuge is a bit technical. So for those who don't have an intimate knowledge of how the power delivery system works in NZ, I am going to try to give a slightly less technical run down on the financial implications of the above.

In recent years, the marginal cost of generating 'renewable energy' has been 'very very cheap', the marginal cost of 'coal generated electricity' has been 'very cheap' and the cost of 'gas generated electricity' has not been so relevant, because more important has been the ability to relatively quickly to fire up a gas turbine to plug holes in the power generation picture, when generation from other sources fall short.

The other point to note is that natural gas is more often than not a by product of oil production. So while our Taranaki basin is exporting oil for 'good dollars', the associated natural gas retrieved is not exported. For that to happen, we would need special port storage facilities and specialised ships to take the product overseas. Over 2021, the average gas wholesale price in NZ was just over 3.0c per kWh. This is a 'domestic by product price' that bears little connection to the price of natural gas in other countries, because natural gas out of a well in New Zealand is a 'stranded asset'.

The power system in NZ is run so that for a given demand, the market invites bids from alternative suppliers of 'power available' to meet that demand. The price bid that gets the incremental supply offered over the demand hump is the price that all power suppliers get, no matter what their actual cost of power production is. Thus the profit that 'our generator' makes is the difference between the highest marginal power price bid accepted by the power market and our generators cost of production.

What Mike Fuge is saying is that, in the past, there was a good margin between 'the cost of thermal power generation by coal' and 'the cost thermal power generation by gas'. So the power generated by gas determined the power price received by the coal fired Rankine units at Huntly, operated by Genesis Energy. But a less reliable gas supply and the cost of coal going up by up to 400% have combined to make coal 'the new marginal price point setter' for all the generating companies. This means you can look at one of those websites that shows power generation over half our periods in the NZ market, and it might show Genesis's Huntly pumping out the power to keep the lights on. But profits for Genesis going forwards will not be aligned with past low hydro years. Because the profit margin is reduced to the mark up on the coal price only, not the difference between the formerly price determining gas price and the much lower imported coal price that was available prior to the Putin invasion of Ukraine. The international coal price going up and down is I believe what Mike Fuge is talking about when he suggests NZ is in for a 'bouncy winter'.

SNOOPY

kiora

10-08-2022, 10:05 AM

Snoopy

10-08-2022, 12:02 PM

"The Lake Onslow hydro scheme could tip the energy market on its head, and not everyone is enthusiastic."
https://www.stuff.co.nz/business/123360959/contact-says-lake-onslow-scheme-would-paralyse-investment-in-renewables
Implications for Contact Energy downriver
"https://businessdesk.co.nz/article/energy/onslow-project-feasible-but-difficult-ministers-told

That last article is paywalled. But I can see just enough of it to discern the article is talking about taking and discharging water to and from Onslow either upstream or downstream of Contact Energy's Roxburgh dam, and the downstream (sic) consequences to Contact from that.

The interesting thing about the Clutha River that feeds Roxburgh, Clyde and maybe Onslow is that, unlike some of the northern hydro catchments, most of the water inflow happens in spring and summer. That is because most of the H2O inflow is a result of snowmelt and not rain. Now it is also true that the maximum power loads occur during the colder winter months. So to prepare for the winter, you would have to pump water up into Onslow in the previous summer and autumn to prepare for the upcoming winter. The Clyde dam is upstream of the Roxburgh dam. If water was taken from above the Roxburgh dam for Onslow, then the Clyde dam would have to supply that water. If the government 'ordered' Contact to release water to do this, then that means potentially less generation capability at Clyde for the winter, and more at Onslow. If Onslow becomes a 'Transpower battery', that in effect would transfer generation capability from Contact to Transpower. Not good for Contact shareholders :-(.

Of course not intimately knowing the seasonal river flow pattern, I may have painted out a pessimistic scenario. Maybe a summer or early autumn storm could push enough water flow into the Clutha river to keep both Clyde and Onslow topped up. I think Jantar has suggested in the past that Contact would be the natural operators of a proposed Onslow for all of these interrelated flow reasons, plus the fact they have maintenance staff on the ground locally..

The Stuff article talked about Onslow 'paralyzing new investment in renewables'. But this article was written in 2020 when Tiwai Point was signalled to close and the carbon price was not so high (AR2021 p24 'carbon costs doubled from $20 to more than $40 per unit over the last two years'). So I don't think the 'paralyzing new investment in renewables' argument still applies.

SNOOPY

xafalcon

10-08-2022, 12:30 PM

Snoopy

14-08-2022, 10:04 AM

FY2020Contact EnergyMercury Energy

No. Shares718.1m1,400m

Share Price (17-12-2020)$8.06$6.18

Normalised eps17.6c11.7c

Normalised PE45.852.8

Normalised NPAT Margin6.1%11.8%

ROE (Assets at Cost)8.4%9.2%

Bank Debt$1,198m$1,291m

Min. Debt Repayment Time9.4 years7.9 years

Snoopy's Fair Share Price Valuation$7.42$6.34

Current Market Premium or Discount to Fair Value+8.6%-2.6%

Notes:

1/ Both CEN valuation and MCY valuation contain adjustment factors to include the value of 'thin air capital' accumulated. For Mercury this is +23.4%. For Contact Energy the adjustment factor is +25.7% It is no longer Contact policy to revalue their assets annually. Hence Contact's balance sheet does not contain 'thin air capital', but Mercury's balance sheet does.

2/ The FY2020 financial statements of both companies were compiled on the assumption that the Tiwai Point Aluminium Smelter is to remain as a going concern.

My snoopshot view shows a clear 'investor value advantage' for Mercury Energy. Despite the stratospheric PE ratios now commanded by both companies, Mercury is trading modestly below fair value. My modelling shows that both companies are now in a position to build substantial new power stations at no additional cost to shareholders. In fact Mercury is doing this right now., and has the ability to build yet another similar sized wind power station when Turitea is finished. In the case of Contact, the new Tauhara Geothermal Station is fully planned (250MW output) and costed ($600m build cost) and consented, with the O.K. from head office all that is keeping construction starting. IMO these renewable energy projects are being priced by the market as already built and operating. Once they come on stream, those stratospheric market PEs for MCY and CEN should reduce.

Mercury Energy currently owns a strategic stake in 'Tilt Renewables', a listed entity that develops and operates wind farms in New Zealand and Australia. 'Tilt Renewables' is currently the subject of undisclosed market interest, that may result in Mercury's interest being sold at a good profit. I have not included any speculation from such a deal in my valuation for Mercury directly. However I have included the capital currently committed to Tilt as 'spent;' on construction of Puketo wind farm (still on the drawing board). So in my judgement ascribing any extra value to the Tilt renewable stake now would be both speculative and also double counting the capital I have already modelled as committed to Puketo.

Important profitability indicators of 'Net Profit margin' and the debt risk indicator of 'MDRT' continue to favour Mercury Energy.

As I write this, both shares are trading above their September 30th 2020 market valuations ( CEN $6.65 and MCY $5.10.) The recovery in share price since that date is primarily because of the political will shown to accommodate an extension to the time frame of the Tiwai Point closure. However, as I write this, the official position remains that the Tiwai Point aluminium smelter will cease production by August 2021. This means there is a substantial downside risk for both share prices if an extension to the Tiwai Point closure date cannot be negotiated,

The current Contact Energy market price premium is not sufficient to make me sell up. I rather like the fact that of late when Mercury has had a good year it has not been so good and Contact and vica versa. Holding both seems to have given me a natural hedge against fluctuating values in the electricity market.

FY2021Contact EnergyMercury Energy

No. Shares776.1m1,400m

Share Price (12-08-2022)$7.71$6.50

Normalised PE32.764.4

Normalised NPAT Margin8.8%8.4%

Normalised NPAT eps23.6c10.1c

Gross dps (FY2022 divs)44.3c25.3c

Gross Dividend Yield (FY2022 divs)5.75%3.89%

ROE (Assets at Cost)10.6%6.6%

Bank Debt$856m$1,491m

Min. Debt Repayment Time4.68 years10.5 years

Snoopy's Fair Share Price Valuation (3)$6.98$5.76

Current Market Premium or Discount to Fair Value+10.5%+12.8%

Notes:

1/ Both CEN valuation and MCY valuation contain adjustment factors to include the value of 'thin air capital' accumulated. For Mercury this is +23.0%. For Contact Energy the adjustment factor is +22.5% It is no longer Contact policy to revalue their assets annually. Hence Contact's balance sheet does not contain 'thin air capital', but Mercury's balance sheet does.

2/ The FY2021 financial statements of both companies were compiled on the assumption that the Tiwai Point Aluminium Smelter is to remain as a going concern.

3/ The working for 'Snoopy's fair price valuations may be found on this thread in posts 2199, 2201 and 2202 (Contact Energy) and on the Mercury Energy Thread (posts and 1428, 1442 and 1451). The method I used was capitalising the dividend averaged over recent years (in the case of Contact revised according to present dividend policy), and added an 'adjustment factor' representing future forecast dividends from further power generation facilities planned but not yet built.

------------------------------

My snoopshot view shows a present day 'close value tussle' between 'Contact Energy' and 'Mercury Energy', notwithstanding the stratospheric PE ratios now commanded by both companies. My modelling is based on both companies building substantial new power stations (Tauhara Geothermal for Contact, Turitea Wind for Mercury), with those new incremental power station earnings already priced in to today's share market price for both. Once these developments come on stream, those historic stratospheric market PEs (which are based on historic earnings) for MCY and CEN should reduce.

Mercury Energy has in August 2021, post the FY2021 reporting period, unwound a strategic stake in 'Tilt Renewables', a listed entity that developed and operated wind farms in New Zealand and Australia. 'Tilt Renewables' has been subject to a joint takeover offer from 'Mercury Energy' and Australian based 'Powering Australian Renewables' (PowAR). The result being that Tilt was 'carved up', with Mercury acquiring the NZ based windfarm portfolio (mainly Manawatu based previously owned by Trustpower) and PowAR the Australian based windfarms.

'Net Profit margin' has tightened up between the two protagonists from the previous comparative year. Mercury noted over FY2021 particular 'headwinds that included challenging generation conditions and elevated spot prices' (AR2021 p8). The debt risk indicator of 'MDRT' now favours Contact Energy, which did a significant capital raising during the FY2021 year.

The present day Contact Energy and Mercury market price premiums are not sufficient to make me sell up. There are sufficient growth plans tabled, beyond Turitea and Tauhara, to keep each business growing. The decarbonisation program at Contact as they continue to roll out geothermal developments, and soon windfarms, combined with the winding down of their remaining gas burning assets, should lower the cost base of the power being generated. Mercury is in the middle of a major restructure with the incorporation of new central North Island both organic (Turitea) and acquired (Tilt) wind farm assets. With their strong central North Island hydro-generation presence, this combination should prove an energy supply management game changer.

I will plan to update my comparative taen, market happy so far.ble as both Contact and Mercury produce their full year results over the next month or so. In the meantime I will be 'sitting tight' on both my Contact Energy and Mercury Energy shareholdings.

SNOOPY

winner69

15-08-2022, 09:04 AM

Contact full year dividend same as last year = no pay rise this year for those holding for divie

sb9

15-08-2022, 09:08 AM

Contact full year dividend same as last year = no pay rise this year for those holding for divie

Not a great set of numbers either. Hope that's not the trend for rest of earnings season reporting.

alokdhir

15-08-2022, 09:11 AM

Contact full year dividend same as last year = no pay rise this year for those holding for divie

Same dividend is a relief ....21 cents is big divvy .

In CEN results is the clue u looking for why GNE doing well ....

winner69

15-08-2022, 09:30 AM

Same dividend is a relief ....21 cents is big divvy .

In CEN results is the clue u looking for why GNE doing well ....

But those relying on dividends need a pay rise to pay the inflating power bills …and other things

No pay rise this year from Contact

Southern Lad

15-08-2022, 09:33 AM

No pay rise this year from Contact

Level of partial imputation credits has increased from 12 months ago, so a slight increase in the after tax dividend in NZ shareholders hands

winner69

15-08-2022, 09:55 AM

Jeez, evrything looks so complicated in the presentations and reports ... maybe that's why I have never really got involved in power companies

Think Fy24 ebitdaf a fraction more than Fy22

BlackPeter

15-08-2022, 09:56 AM

But those relying on dividends need a pay rise to pay the inflating power bills …and other things

No pay rise this year from Contact

LOL - always dangerous to rely on dividends to come when you need them.

Dividends come when companies are willing and able to pay them ... this is different and uncorrelated to shareholders needing them.

On the other hand - if interest rates rise, SP will drop, which increases the dividend yield, doesn't it? This must be good :) ;

winner69

15-08-2022, 10:01 AM

Level of partial imputation credits has increased from 12 months ago, so a slight increase in the after tax dividend in NZ shareholders hands

Yes indeed

Gross divie full year up 5.3%

see weed

15-08-2022, 10:12 AM

SP up 16c more divi chasers :)

alokdhir

15-08-2022, 10:17 AM

SP up 16c more divi chasers :)

Surely over $ 8 before going ex as we discussed before ...well done mate on your safe money making strategy ...:t_up:

Snoopy

15-08-2022, 11:11 AM

Jeez, evrything looks so complicated in the presentations and reports ... maybe that's why I have never really got involved in power companies

Here is one for you real accountants to ponder.

If you look at slide 25 of PR2022 titled 'Cashflow and Capital Expenditure' you will see SIB (Stay in Business) capital expenditure at $75m this year, up from $61m last year. However if you go to the equivalent slide from last year (slide 24 of PR2021) you will find an extra graph that is missing from this years presentation, titled 'SIB Capital Expenditure Accounting'. On that chart, the SIB capital expenditure for FY2021 is shown as $75m, not $61m.

This got me thinking, why last year did Contact give these two different SIB capex numbers? Because it looks to me as though the real SIB Capex for FY2021 was $75m, and the $61m 'cashflow' SIB 'capex' figure was possibly caused by Contact not paying their bills on time, to make their cash position look better than it really was. This year I can find no mention of 'Accounting SIB Capex' in PR2022. I think this means Contact aren't telling us what the real SIB Capex bill was, and they are only 'declaring' that bit of the bill that was actually paid. Or am I being too cynical, and not understanding what those respective presentation slides are telling us?

SNOOPY

LaserEyeKiwi

15-08-2022, 11:32 AM

This article has an opinion explaining why the Onslow project may turn out to be quite advantageous to Contact if it eventuates that Onslow pumps from Roxborough Lake

https://www.stuff.co.nz/business/129543702/lake-onslow-power-scheme-pioneer-criticises-idea-of-ugly-concrete-dam (https://www.stuff.co.nz/business/129543702/lake-onslow-power-scheme-pioneer-criticises-idea-of-ugly-concrete-dam)

winner69

15-08-2022, 11:48 AM

see weed

15-08-2022, 12:04 PM

Snoopy

15-08-2022, 12:31 PM

The interesting thing about the Clutha River that feeds Roxburgh, Clyde and maybe Onslow is that, unlike some of the northern hydro catchments, most of the water inflow happens in spring and summer. That is because most of the H2O inflow is a result of snowmelt and not rain. Now it is also true that the maximum power loads occur during the colder winter months. So to prepare for the winter, you would have to pump water up into Onslow in the previous summer and autumn to prepare for the upcoming winter. The Clyde dam is upstream of the Roxburgh dam. If water was taken from above the Roxburgh dam for Onslow, then the Clyde dam would have to supply that water. If the government 'ordered' Contact to release water to do this, then that means potentially less generation capability at Clyde for the winter, and more at Onslow. If Onslow becomes a 'Transpower battery', that in effect would transfer generation capability from Contact to Transpower. Not good for Contact shareholders :-(.

Of course not intimately knowing the seasonal river flow pattern, I may have painted out a pessimistic scenario. Maybe a summer or early autumn storm could push enough water flow into the Clutha river to keep both Clyde and Onslow topped up. I think Jantar has suggested in the past that Contact would be the natural operators of a proposed Onslow for all of these interrelated flow reasons, plus the fact they have maintenance staff on the ground locally..

This article has an opinion explaining why the Onslow project may turn out to be quite advantageous to Contact if it eventuates that Onslow pumps from Roxborough Lake

https://www.stuff.co.nz/business/129543702/lake-onslow-power-scheme-pioneer-criticises-idea-of-ugly-concrete-dam (https://www.stuff.co.nz/business/129543702/lake-onslow-power-scheme-pioneer-criticises-idea-of-ugly-concrete-dam)

From the Stuff Article:
"Waikato University associate professor Earl Bardsley, who came up with the idea of building the pumped hydro scheme, said it would be in Contact Energy’s interest to have water pumped from Lake Roxburgh during times of plentiful power supply and then released back to the lake when power generation from Lake Onslow was needed."

“With respect to a tunnel connecting to Lake Roxburgh, the point seems to be missed that the pumped water is later returned to Lake Roxburgh,” he said.

“Contact Energy would presumably be pleased that some of the water in Lake Roxburgh is shifted to be stored in Lake Onslow during times of low prices, then returned later to Lake Roxburgh at times of higher prices, thus increasing income from the Roxburgh power station.”

To clear up any naming and geographic confusion, Lake Dunstan feeds the Clyde dam. These are both upstream of Lake Roxburgh that feeds the Roxburgh dam. Both dams are owned and operated by Contact Energy.

I don't follow Prof. Earl Beardsly's argument.

a/ I get what he is saying about shifting water up to Onslow from Lake Roxburgh when prices are low. That means that water can be returned to Lake Roxburgh when prices are high (this bit makes sense as being positive for Contact).

But where did the water from Lake Roxburgh come from? It came upstream from the Clyde dam. And it would only benefit Contact to release extra water from the Clyde dam for Lake Roxburgh (and hence Onslow) when power prices are high.

b/ If the Clyde dam was forced to release water to fill Lake Roxburgh when prices were low (Prof Beardsly's scenario), then doesn't that mean that water will be running through the Clyde dam when prices are low? That surely is not what Contact Energy wants?

There is another problem with putting water supply into Lake Roxburgh for Onslow when the power from the Clyde dam is not needed. You are simply taking energy from one battery (Lake Dunstan) and putting it into another (Lake Onslow), with no net energy (or price?) gain.

SNOOPY

xafalcon

15-08-2022, 01:12 PM

Government policy is that nobody owns water. Therefore water can be taken to fill Lake Onslow by whoever, whenever. If Contact wanted an unwinable battle, they could hold water at Clyde, and when Lake Roxborough hit minimum level, Lake Onslow could be filled no further. Then legislation would be enacted to force the release of water

But it won't come to that. The generators know they have 10 years of massive profits left. Then it will be a different market, different CEO, different BOD etc and probably a different wholesale pricing mechanism

limmy

15-08-2022, 02:02 PM

CEN pays divvies steadily year after year. What more can we ask for ?

turnip

15-08-2022, 02:37 PM

b/ If the Clyde dam was forced to release water to fill Lake Roxburgh when prices were low (Prof Beardsly's scenario), then doesn't that mean that water will be running through the Clyde dam when prices are low? That surely is not what Contact Energy wants?

It might not be what they want, but Contact's CEO has described the Clutha as NZ's biggest run-of-river scheme, i.e. when inflows are high Contact often doesn't have much choice but to release water.

There is another problem with putting water supply into Lake Roxburgh for Onslow when the power from the Clyde dam is not needed. You are simply taking energy from one battery (Lake Dunstan) and putting it into another (Lake Onslow), with no net energy (or price?) gain.

It is being taken it from a lower elevation to a higher elevation, so it increases the potential energy of the water, and the power to do this could come from the North Island, e.g. from Contact's big geothermal plants or Mercury's wind farms that continue to generate even when prices are low. If the massive tranbsmission upgrade needed to get Onslow's power to where it is neede in Auckland occurs then it should be able to be used the other way to transmit the North Island's surplus geothermal and wind generation down to Onslow too.

LaserEyeKiwi

15-08-2022, 05:12 PM

From the Stuff Article:
"Waikato University associate professor Earl Bardsley, who came up with the idea of building the pumped hydro scheme, said it would be in Contact Energy’s interest to have water pumped from Lake Roxburgh during times of plentiful power supply and then released back to the lake when power generation from Lake Onslow was needed."

“With respect to a tunnel connecting to Lake Roxburgh, the point seems to be missed that the pumped water is later returned to Lake Roxburgh,” he said.

“Contact Energy would presumably be pleased that some of the water in Lake Roxburgh is shifted to be stored in Lake Onslow during times of low prices, then returned later to Lake Roxburgh at times of higher prices, thus increasing income from the Roxburgh power station.”

To clear up any naming and geographic confusion, Lake Dunstan feeds the Clyde dam. These are both upstream of Lake Roxburgh that feeds the Roxburgh dam. Both dams are owned and operated by Contact Energy.

I don't follow Prof. Earl Beardsly's argument.

a/ I get what he is saying about shifting water up to Onslow from Lake Roxburgh when prices are low. That means that water can be returned to Lake Roxburgh when prices are high (this bit makes sense as being positive for Contact).

But where did the water from Lake Roxburgh come from? It came upstream from the Clyde dam. And it would only benefit Contact to release extra water from the Clyde dam for Lake Roxburgh (and hence Onslow) when power prices are high.

b/ If the Clyde dam was forced to release water to fill Lake Roxburgh when prices were low (Prof Beardsly's scenario), then doesn't that mean that water will be running through the Clyde dam when prices are low? That surely is not what Contact Energy wants?

There is another problem with putting water supply into Lake Roxburgh for Onslow when the power from the Clyde dam is not needed. You are simply taking energy from one battery (Lake Dunstan) and putting it into another (Lake Onslow), with no net energy (or price?) gain.

SNOOPY

I would think it makes the most sense when the dams are needing to spill water - if Onslow was able to pump that instead it would be very beneficial to contact. Also presumably there dams would be the source of power for when Onslow is being filled (the electricity needing to power the pumps) - so contact also picks up a large new customer that only buys power off-peak.

In the end - the numbers/economics probably end up being that if Onslow does get built then it makes the most sense for the entity operating Onslow to also be the same one that operates Clyde & Roxburgh Dams - no idea how that deal would be structured.

RTM

15-08-2022, 06:14 PM

CEN pays divvies steadily year after year. What more can we ask for ?

Well...I would like modest capital growth as well. To more or less match inflation. Which I have had.
Have held since 2014 topping up occassionaly when price has dropped.
5.5% of my portfolio. Looking forward to dividend hitting bank account.

Snoopy

15-08-2022, 09:10 PM

It is being taken it from a lower elevation to a higher elevation, so it increases the potential energy of the water, and the power to do this could come from the North Island, e.g. from Contact's big geothermal plants or Mercury's wind farms that continue to generate even when prices are low. If the massive transmission upgrade needed to get Onslow's power to where it is needed in Auckland occurs then it should be able to be used the other way to transmit the North Island's surplus geothermal and wind generation down to Onslow too.

Yes that is true. But the potential energy gained by having water elevated to a high plateau lake will be exactly lost by the electrical energy needed to pump it there. And that is a best case scenario. There will be friction losses in the piping and the electric motors that power the project pumps to make sure that conversion of energy 'from bottom to top' falls short of 100%. So the whole Onslow concept only makes sense when:

a/ The power price fluctuates with time AND SO
b/ It becomes possible to take power from a generation site- where there is no alternative use of that power at that time (i.e. it has a low instantaneous 'market value') - so that you can use what would otherwise be 'wasted energy' to 'pump water up hill'.

The problem I see with using hydro-electricity to do this is that there is always an alternative use. Just keep the water behind the dam until it is needed! That way you get to harvest all of the potential energy contained in that water, without losing energy to extra pumping and piping inefficiencies.

That means the best solution for 'pumped hydro' looks to be bringing surplus power down from the North Island to do the pumping. It wouldn't be geothermal power, because geothermal energy stations tend to be best suited to base load. It wouldn't be thermal energy from Huntly, because pumping water uphill using thermal energy to use in a situation that would otherwise require thermal energy to balance supply would not save any greenhouse gases being emitted. That just leaves wind power. So ideally we would want a situation with a solid breeze blowing over the north while there is an excess of water in the Clutha catchment, which probably means in the Spring and the Summer. How often would those ideal conditions line up? I don't know.

It might not be what they want, but Contact's CEO has described the Clutha as NZ's biggest run-of-river scheme, i.e. when inflows are high Contact often doesn't have much choice but to release water.

I would think it makes the most sense when the dams are needing to spill water - if Onslow was able to pump that instead it would be very beneficial to Contact.

The above two comments suggest that there are short sharp time periods where otherwise spilled water could be pumped up to Onslow to save what otherwise would be otherwise be 'wasted water'. The idea of pumping the excess of a raging torrent up a hill doesn't sound practical to me. Yes you could in theory put in sufficient pumping and piping capacity to do it. But that sounds like an enormous incremental capital cost over and above what would normally be required to keep Onslow full.

Also presumably there dams would be the source of power for when Onslow is being filled (the electricity needing to power the pumps) - so Contact also picks up a large new customer that only buys power off-peak.

Doesn't sound like a good deal for Contact to me, for reasons outlined in the first paragraph of my reply.

In the end - the numbers/economics probably end up being that if Onslow does get built then it makes the most sense for the entity operating Onslow to also be the same one that operates Clyde & Roxburgh Dams - no idea how that deal would be structured.

In an engineering sense, servicing Onslow would be no more difficult that servicing Clyde and Roxburgh dams. So the engineering capability should already exist locally, whether those people be contractors or direct Contact Energy employees. But in an economic system wide electricity market sense, the purpose of Onslow would be to suppress peak pricing. That would not go down well with Contact when pre-Onslow they could bring another turbine from Clyde into service to take advantage of rogue peak pricing.

SNOOPY

alokdhir

16-08-2022, 04:02 AM

BlackPeter

16-08-2022, 08:26 AM

...

The above two comments suggest that there are short sharp time periods where otherwise spilled water could be pumped up to Onslow to save what otherwise would be otherwise be 'wasted water'. The idea of pumping the excess of a raging torrent up a hill doesn't sound practical to me. Yes you could in theory put in sufficient pumping and piping capacity to do it. But that sounds like an enormous incremental capital cost over and above what would normally be required to keep Onslow full.

SNOOPY

Not quite sure I understand that comment. The first hydro storage lakes have been implemented (in other parts of the world) basically at the same time they started to generate and distribute electric power.

The Walchenseekraftwerk in Upper Bavaria (basically two with pipes connected lakes and a generator / pump inbetween) works efficiently, effectively and economically for nearly one century (started in 1924) ... and the work to pump the water uphill is done by the very generators they use to generate the power when the water flows downhill. Just turn the generator into a pump by connecting it to power (instead of harvesting power as you do from a generator). No additional equipment required ... you just need an ordinary hydroelectric plant plus some storage space at the top of the power station.

https://de.wikipedia.org/wiki/Walchenseekraftwerk

see weed

16-08-2022, 11:07 AM

Surely over $ 8 before going ex as we discussed before ...well done mate on your safe money making strategy ...:t_up:
Thank you. Started topping up on 14/6/22 but didn't quite get to my target of 50k shares but the ones purchased are up $27k as i type and looking forward to $8.3k div:). Next cab off STU hoping.

Snoopy

16-08-2022, 11:34 AM

Not quite sure I understand that comment. The first hydro storage lakes have been implemented (in other parts of the world) basically at the same time they started to generate and distribute electric power.

I wasn't commenting on the technical feasibility of pumping water up hill using hydro energy. I was commenting on the economic feasibility of doing so 'all at once' during flood conditions.

The Walchenseekraftwerk in Upper Bavaria (basically two with pipes connected lakes and a generator / pump inbetween) works efficiently, effectively and economically for nearly one century (started in 1924) ... and the work to pump the water uphill is done by the very generators they use to generate the power when the water flows downhill. Just turn the generator into a pump by connecting it to power (instead of harvesting power as you do from a generator). No additional equipment required ... you just need an ordinary hydroelectric plant plus some storage space at the top of the power station.

https://de.wikipedia.org/wiki/Walchenseekraftwerk

Always interested to hear how other countries do this, and it looks like in Bavaria they have nearly 100 years experience in 'pumped hydro energy'. Interesting reference - thanks. I don't speak German but used 'google translate' to dip into your reference. Please forgive me if I have got the wrong gist of the article because of this, but there are a couple of points to note.

1/ "The Walchensee power plant uses hydropower to generate electricity at a natural height difference of 201 m between the Walchensee (801 m above sea level), which acts as the "upper reservoir" and the "lower reservoir" Kochelsee (600 m above sea level). During the operation of the power plant, the water level of the Walchensee can be lowered by around 6 m, which corresponds to an available storage space of 110 million m³. It is therefore a storage power plant, but not a pumped storage power plant, since no water is pumped back into the Walchensee. It was originally built for the general power supply and is now mainly used as a peak load power plant and – depending on the water supply – also as a medium load power plant. reservoirs and tributaries."

IOW while the Walchensee uses pumped input from some upstream hydro developments, this is not 'pumped hydro' in the sense of what is being proposed at Onslow.

2/ "The natural outflow of the Walchensee near Niedernach - via the Jachen to the Isar - is blocked by a weir. In order to keep the water level of the Kochelsee as stable as possible, its outflow is regulated in a canal near Kochel. In order to protect the flat Loisach Valley and Wolfratshausen from flooding caused by the water from the power plant,"

So 'Walchensee' has flooding issues as well. But in this case, the threat of the flooding is excessive discharge from 'Walchensee' (too much water being released at the top of the cliff). The outflow from 'Walchensee' is controlled by a weir at the top of the cliff and an alternative discharge path at 'Kochelsee' at the bottom of the cliff. This is very different to the Clutha River situation where the flooding is happening at the bottom of the cliff, terhe is no alternative route for excess water and the 'proposed fix' is to pump the rage of the torrent uphill, with no control on the amount of water that is required to be pumped uphill.

So while this is impressive engineering from 100 years ago in Germany, and is still well suited to serve that market today, I don't see many lessons here we can apply to Onslow on the Clutha River in New Zealand in 2022.

SNOOPY

BlackPeter

16-08-2022, 12:08 PM

I wasn't commenting on the technical feasibility of pumping water up hill using hydro energy. I was commenting on the economic feasibility of doing so 'all at once' during flood conditions.

Always interested to hear how other countries do this, and it looks like in Bavaria they have nearly 100 years experience in 'pumped hydro energy'. Interesting reference - thanks. I don't speak German but used 'google translate' to dip into your reference. Please forgive me if I have got the wrong gist of the article because of this, but there are a couple of points to note.

1/ "The Walchensee power plant uses hydropower to generate electricity at a natural height difference of 201 m between the Walchensee (801 m above sea level), which acts as the "upper reservoir" and the "lower reservoir" Kochelsee (600 m above sea level). During the operation of the power plant, the water level of the Walchensee can be lowered by around 6 m, which corresponds to an available storage space of 110 million m³. It is therefore a storage power plant, but not a pumped storage power plant, since no water is pumped back into the Walchensee. It was originally built for the general power supply and is now mainly used as a peak load power plant and – depending on the water supply – also as a medium load power plant. reservoirs and tributaries."

IOW while the Walchensee uses pumped input from some upstream hydro developments, this is not 'pumped hydro' in the sense of what is being proposed at Onslow.

2/ "The natural outflow of the Walchensee near Niedernach - via the Jachen to the Isar - is blocked by a weir. In order to keep the water level of the Kochelsee as stable as possible, its outflow is regulated in a canal near Kochel. In order to protect the flat Loisach Valley and Wolfratshausen from flooding caused by the water from the power plant,"

So 'Walchensee' has flooding issues as well. But in this case, the threat of the flooding is excessive discharge from 'Walchensee' (too much water being released at the top of the cliff). The outflow from 'Walchensee' is controlled by a weir at the top of the cliff and an alternative discharge path at 'Kochelsee' at the bottom of the cliff. This is very different to the Clutha River situation where the flooding is happening at the bottom of the cliff, terhe is no alternative route for excess water and the 'proposed fix' is to pump the rage of the torrent uphill, with no control on the amount of water that is required to be pumped uphill.

So while this is impressive engineering from 100 years ago in Germany, and is still well suited to serve that market today, I don't see many lessons here we can apply to Onslow on the Clutha River in New Zealand in 2022.

SNOOPY

Well researched - I stand corrected (assuming Wikipedia is right ... the translation is fine). The Walchenseekraftwerk is not a pumped storage hydrostation. I really should first read the links I attach instead of assuming to know what's in them, shouldn't I?

Never trust your physics teacher - he taught us 50 years ago that the Walchenseekraftwerk is a pumped storage power station, but it looks like he was wrong. Some more research shows that there was a proposal to turn it into a pumped storage hydrostation, but this was never implemented.

Anyway - there are however plenty other pumped storage power stations around we could learn from, and some of them are as well around since at least the 1930'íes (check the second table in the link below):

https://en.wikipedia.org/wiki/List_of_pumped-storage_hydroelectric_power_stations

Interesting however to note that many of the big ones seem to have been built in China ... maybe they are not as environmentally friendly and green as one would think and hope?

Snoopy

16-08-2022, 05:48 PM

Snoopy - your question maybe something to do with this 'Working capital changes $20m unfavourable to FY21 tied to decrease in payables on FY21'

Seems they paid a lot of bills after year end .... maybe your $10m was included

With all that detail in the presentation and report no wonder you are in seventh heaven trying to come to grips with it

Winner, the audio explanation of the working capital changes (37minutes into PR2022) was: The staff bonus payment accrual was lower at the end of FY2022 than FY2021, the bonus costs were lower too, but they also shifted their remuneration structure. Anyone below senior manager has now had all of their at risk short term pay forwarded and paid out in their monthly salary which was cashflow negative from a company perspective.

CAPEX higher was explained as part of the additional $100m SIB capex that will be spent cumulatively over the next four years, including 'something mumbled' and projects that increase the resilience of renewable assets and get a few extra GWh out of Roxburgh

SNOOPY

Snoopy

16-08-2022, 05:52 PM

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/CEN/396941/376502.pdf

Very bullish projections for FY 25 ....35 % growth in EBITAF !!

Jarden says Divvy can grow to excess of 50 Cents ...Not just a safe utility but a growth stock too

Should rise further as market pays more attention to future plans and projections

https://www.nzherald.co.nz/business/contact-energys-bold-new-plan-to-boost-nz-earnings/EE7PD5MRFIX4GDRVQS7J4M7SCI/

Some brief notes from the PR2022 webcast.

https://youtu.be/a7XB0gGH9Ho

Dividend for FY2023 announced to be 35cps. No increase in dividend until the 'build phase' is finished and a new agreement is signed with Tiwai. (From PR2022 at the 41 minute mark).

Long run marginal cost expectation for new developments is $100-$110/MWh (PR2022 at the 1 hour 45 second mark). This will be indicative of the average spot price going forwards. This is driven by a dramatic increase in Windfarm Energy costs, +30% over the last year (includes capital costs +10-20%, higher WACC due to rising interest rates, plus a complimentary increase in 'green firming costs', or hedging against times of low wind) (PR2022 1:07min)

Operating Cashflow is predicted to be stable because in times where there is a lot of water, Contact tend to inject more gas (into storage) and when the water isn't so plentiful, Contact use the gas, so volatility evens out (PR2022 at 1hr 17.5 minute mark)..

SNOOPY

Snoopy

17-08-2022, 05:12 PM

Here is one for you real accountants to ponder.

If you look at slide 25 of PR2022 titled 'Cashflow and Capital Expenditure' you will see SIB (Stay in Business) capital expenditure at $75m this year, up from $61m last year. However if you go to the equivalent slide from last year (slide 24 of PR2021) you will find an extra graph that is missing from this years presentation, titled 'SIB Capital Expenditure Accounting'. On that chart, the SIB capital expenditure for FY2021 is shown as $75m, not $61m.

This got me thinking, why last year did Contact give these two different SIB capex numbers? Because it looks to me as though the real SIB Capex for FY2021 was $75m, and the $61m 'cashflow' SIB 'capex' figure was possibly caused by Contact not paying their bills on time, to make their cash position look better than it really was. This year I can find no mention of 'Accounting SIB Capex' in PR2022. I think this means Contact aren't telling us what the real SIB Capex bill was, and they are only 'declaring' that bit of the bill that was actually paid. Or am I being too cynical, and not understanding what those respective presentation slides are telling us?

I have been racking my brains trying to figure out the difference between:

a/ 'SIB (Stay In Business) capex AND
b/ 'SIB' cash capex.

1/ I wondered if it might relate to consequential servicing contracts out in the future which are signed and sealed but not 'paid for' until the servicing is delivered?

2/ Another option is that the piece not paid for might represent a 'project completion contingency'. IOW Contact is paying for some work to be done at an hourly rate, but a lump sum is retained so that if the upgrade does not work as planned, then there is a 'cash penalty' (via a forfeited deposit) for the project servicing supplier.

Lastly I went to Google and typed in "cash capex" which sent me here

https://www.terveystalo.com/en/company/investors/financial-information/definition-of-key-figures/

This lead me to the following definition:

3/ Cash capex = Acquisition and sale of property, plant and equipment, intangible assets and available-for-sale financial assets + acquisition and sale of subsidiaries and business operations, net of cash acquired, as presented in consolidated statement of cash flows

IOW if Contact bought something which had a cash component as part of the purchase. then that cash had to be 'netted off' to get 'Cash capex'. But with Contact simply upgrading equipment, this doesn't sound like a very likely concession to be applied in this instance.

My reference then goes on to say

4/ Total Capex = Total Cash Capex + non-cash capex, including hire purchase and financial leases and M&A

I could imagine this might apply at Contact Energy if a 'repair' job included leased componentry as part of the equipment installed. That could mean some of the SIB capital upgrade might manifest as a 'finance charge'.

------------

Now I have four ideas that could explain why there should be a distinction between 'capex' and 'cash capex'. But the underlying theme of my thoughts is that all of those possibilities point toward a cash settlement of the 'non cash balance' if not now (e.g. the finance charge) then eventually.

I admit that after years looking at accounts, I have a very low tolerance for companies making up new financial terms to improve the presentation of their financial position. I think Contact using 'cash SIB capex' rather than 'SIB capex' deserves a 'penalty' from the financial analyst judges. That penalty would consist of a multiplication factor that raises the quoted 'cash SIB capex' figure to the real 'SIB capex' figure it should be. I wonder what multiplication factor I should use? Hmmmm.

SNOOPY

turnip

17-08-2022, 11:17 PM

Ormat is a supplier for Contact's Te Huka 3 plant. They describe it as a "maximum continuous performance 59MW geothermal power plant".

https://investor.ormat.com/news-events/news/news-details/2022/Ormat-Secures-100-Million-Supply-and-EPC-Contracts-in-New-Zealand-and-Indonesia/default.aspx

Snoopy

19-08-2022, 06:47 PM

I have got a bit slack with my overview of results, this post looking at FY2021. The FY2022 result will be released in 10 days. So I plan a rather more prompt review of that.

For those who came in late, a 'scenario analysis' is not an historical record of what happened. Instead it answers the question, what would happen if current dividend policy acted on the historical results of previous years. The purpose of this is to get a measure of how future results might change, if the weather events of the previous four years were superimposed on today's investment policy.

For this analysis I am using the most recent dividend policy (FY2021) of paying 80-100% of cashflows. For modelling purposes I will 'split things down the middle' and assume 90% of free cashflows are paid out. Contact have also said they will base their level on dividend payments around the last four years of results So for the purpose of this exercise, my timeframe ia from FY2018 to FY2021 inclusive.

FY2018FY2019
FY2020[/TwwwD]FY2021

Cashflows from Operating Activities (1,2)
[TD=align:right]$457m + $85m$466m + $85m
$390m+$85m$475m+$85m

less Stay in Business CAPEX
($78m)($60m)($52m)($75m)

less Net Interest Expense
($84m)($70m)
($55m)($50m)

equals Operating Free Cashflow
$380m$421m
$368m$435m

Operating Free Cashflow (OFC) x 80%
$304m$337m$294m$348m

Modelled Dividend per Share OFC80% (based on 806m shares on issue (3))
38cps42cps37cps43cps

Operating Free Cashflow (OFC) x 90%
$342m$379m$331m$392m

Modelled Dividend per Share OFC90% (based on 806m shares on issue (3))
42cps47cps41cps49cps

EBITDAF-DA-I-T (Normalised NPAT) (4)
$131m + $45m$175m +$45m
$127m + $45m$183m + $45m

Normalised forecast 'eps' (based on 806m shares on issue)
21.8cps27.3cps21.3cps28.3cps

(1) From slide 6 of PR2020: "Projected EBITDAF uplift of ~$85m p.a. at wholesale price of $80/MWh" on commissioning of Tauhara.

(2) The definition of 'Operating Cashflows' has slightly changed between FY2019 and FY2020. This has affected the 'Operating Cashflow' figure that I have used, which from FY2020 is different to that in the latter cashflow statements. In AR2019 the 'interest paid' is reported in 'Financing cashflows' and the 'interest earned' is reported under 'Investing cashflows'. By contrast both are reported in 'Operating Cashflows' in AR2020. For consistency I am using the earlier definition of cashflows in the above table, with no interest charges deducted or added.

(2a) FY2020 'Operating Cashflow' for FY2019 is listed as $466m in AR2019 and $401m in AR2020. Why the difference? In FY2020 the FY2019 figure has been reduced by a net interest figure of $69m -$4m = $65m (Figures relating to FY2019). Applying the same adjustment logic to FY2020, where the net interest paid was $49m, this explains why 'Operating Cashflows' for FY2020 are listed as $390m in my table, but only $341m in the FY2020 Integrated Report.

(2b) FY2021 'Operating Cashflow' adjustment. The net interest figure paid over FY2021 was $43m. This explains why 'Operating Cashflows' for FY2021 are listed as $475m in my table, but only $432m in the FY2021 Integrated Report.

(3) Following the capital raising completed on 12-03-2021, and the subsequent dividend paid on 30-03-2021 (with the DRP operating) on all shares issued (including those raised in the March 2021 capital raising), the number of shares on issue to jumped to 776,122,070 shares at the EOFY2021 balance date. I expect the DRP will further increase the number of shares on issue in the future, I predict at a rate of 2.5% per year (compounding). This will see the total number of shares after four years to increase as follows:

No.Shares

Year 0 (EOFY2021)776,122.070

Year 1795,525,122

Year 2815,413,250

Year 3835,798,581

Total/4 = Average805,714,716

(4) I shall assume with Tauhara commissioned Depreciation will go up by $14m per year (the same jump in depreciation that occurred when Te Mihi was commissioned). There is $180m of new incremental debt funding associated with the building of Tauhara. At a 5.0% borrowing rate, this will increase the annual interest bill by:

$180m x 0.05 = $9m

The projected NPAT increment as a result or Tauhara coming on stream is therefore:

0.72x ($85m -$14m -$9m) = $45m

Tauhara Discount Factor for Future Earnings

This incremental increase in NPAT should perhaps be discounted back because it will not occur for three years time, at the point where Tauhara comes on line. For future discounting of profits, I use a 5.0% discount rate, which equates to the long term Gross Yield I am prepared to accept.

1/(1.05)^3 = 0.8638

$45m x 0.8638 = $39m

Back on the horse twice this month, now the FY2022 result has been released.

This 'scenario analysis' is not an historical record of what happened. Instead it answers the question, what would happen if current dividend policy acted on the historical results of previous years. The purpose of this is to get a measure of how future results might change, if the weather events of the previous four years were superimposed on today's investment policy.

For this analysis I am using the most recent dividend policy (FY2021) of paying 80-100% of cashflows. For modelling purposes I will 'split things down the middle' and assume 90% of free cashflows are paid out. Contact have also said they will base their level on dividend payments around the last four years of results So for the purpose of this exercise, my timeframe is from FY2019 to FY2022 inclusive.

FY2019
FY2020
FY2021
FY2022

Cashflows from Operating Activities (1,2)
$466m + $85m
$390m+$85m
$475m+$85m
$428m+$85m

less Stay in Business CAPEX
($60m)
($52m)
($75m)
($85m) (Note 5)

less Net Interest Expense
($70m)
($55m)
($50m)
($36m)

equals Operating Free Cashflow
$380m
$421m
$368m
$392m

Operating Free Cashflow (OFC) x 80%
$304m
$337m
$294m
$314m

Modelled Dividend per Share OFC80% (based on 808m shares on issue (3))
38cps
42cps
36cps
39cps

Operating Free Cashflow (OFC) x 90%
$342m
$379m
$331m
$353m

Modelled Dividend per Share OFC90% (based on 808m shares on issue (3))
42cps
47cps
41cps
44cps

EBITDAF-DA-I-T (Normalised NPAT) (4)
$175m +$45m
$127m + $45m
$183m + $45m
$172m + $45m

Normalised forecast 'eps' (based on 808m shares on issue)
27.2cps
21.3cps
28.2cps
26.9cps

Notes

(1) From slide 6 of PR2020: "Projected EBITDAF uplift of ~$85m p.a. at wholesale price of $80/MWh" on commissioning of Tauhara.

(2) The definition of 'Operating Cashflows' has slightly changed between FY2019 and FY2020. This has affected the 'Operating Cashflow' figure that I have used, which from FY2020 is different to that in the latter cashflow statements. In AR2019 the 'interest paid' is reported in 'Financing cashflows' and the 'interest earned' is reported under 'Investing cashflows'. By contrast both are reported in 'Operating Cashflows' in AR2020. For consistency I am using the earlier definition of cashflows in the above table, with no interest charges deducted or added.

(2a) FY2020 'Operating Cashflow' for FY2019 is listed as $466m in AR2019 and $401m in AR2020. Why the difference? In FY2020 the FY2019 figure has been reduced by a net interest figure of $69m -$4m = $65m (Figures relating to FY2019). Applying the same adjustment logic to FY2020, where the net interest paid was $49m, this explains why 'Operating Cashflows' for FY2020 are listed as $390m in my table, but only $341m in the FY2020 Integrated Report.

(2b) FY2021 'Operating Cashflow' adjustment. The net interest figure paid over FY2021 was $43m. This explains why 'Operating Cashflows' for FY2021 are listed as $475m in my table, but only $432m in the FY2021 Integrated Report.

(2c) FY2022 'Operating Cashflow' adjustment. The net interest figure paid over FY2022 was $28m. This explains why 'Operating Cashflows' for FY2021 are listed as $428m in my table, but only $400m in the FY2021 Integrated Report.

(3) Following the capital raising completed on 12-03-2021, and the subsequent dividend paid on 30-03-2021 (with the DRP operating) on all shares issued (including those raised in the March 2021 capital raising), the number of shares on issue to jumped to 778,794,640 shares at the EOFY2022 balance date. I expect the DRP will further increase the number of shares on issue in the future, I predict at a rate of 2.5% per year (compounding). This will see the total number of shares after four years to increase as follows:

No.Shares

Year 0 (EOFY2022)778,794,640

Year 1798,264,506

Year 2818,221,119

Year 3838,676,647

Total/4 = Average808,489,228

(4) I shall assume with Tauhara commissioned Depreciation will go up by $14m per year (the same jump in depreciation that occurred when Te Mihi was commissioned). There is $180m of new incremental debt funding associated with the building of Tauhara. At a 5.0% borrowing rate, this will increase the annual interest bill by:

$180m x 0.05 = $9m

The projected NPAT increment as a result or Tauhara coming on stream is therefore:

0.72x ($85m -$14m -$9m) = $45m

(5) AR2022 Note A3 states Stay In Business (SIB) capital cashflow of $75m over FY2022. I have applied a 20% surcharge on this value to get an estimate of $85m for the total stay in business capital charge applicable to FY2022. Unlike previous years, overall SIB capex was not disclosed for FY2022 (except from AR2022 p60 'SIB Capex more than FY2021').

Tauhara Discount Factor for Future Earnings

This incremental increase in NPAT should perhaps be discounted back because it will not occur for two years time, at the point where Tauhara comes on line. For future discounting of profits, I use a 5.0% discount rate, which equates to the long term Gross Yield I am prepared to accept.

1/(1.05)^2 = 0.9070

$45m x 0.9070 = $41m

SNOOPY