Showing posts with label ORG. Show all posts
Showing posts with label ORG. Show all posts

Tuesday, October 12, 2010

Origin Energy asset stripping Contact Energy

Just doing a little bit of research on something else when I got sidetracked by Contact Energy Ltd [CEN.NZX] and it relationship with its ASX listed majority shareholder Origin Energy Ltd [ORG.ASX].

From the financial figures that one can glean from a Thompson First Call research report, one can see that the relationship between the two is one of the master siphoning all the good stuff out of its little cousin.

The reasons for this are rather nasty, deceitful and give the middle finger to minority Contact Energy shareholders.

If we look at the peak profit for the company in the 2005-2008 period of between $281 - $237 million we can see dividend payouts ranging from 18c to 28c per share, but as profit dropped to $118 million in 2009 and $155 million in 2010 the dividend soared to 45c. (see chart below)

Of course Origin, with a 51% stake in Contact gets the majority share of the dividend payout.

Yes I know, as a majority owner Origin are entitled to take this dividend but why would they double it without a corresponding surge in profit?



Well, Origin have made a couple of cheapskate attempts at taking full control of Contact but they couldn't get agreement from minority shareholders on a price. Origin offered lowball figures undervaluing their target and the two attempts ended up floundering in a pool of bad feelings and finger pointing.

Origin are still interested in taking full control of Contact but they do not want to pay full market value (over $10 bucks by my estimation) and who does, so why not try milking the cow until its cash udder becomes so depleted minority shareholders will be begging for Origin to make them an offer.

Just look at Contact's long term debt levels. Surging from $514 million in 2007 to $1279 million in 2010, close to $200 million alone has been added since 2009.

A lot of this debt has been used to develop generation capacity but why would you continue to borrow just to pay massive dividends?

It just doesn't add up.

Contact CEO David Baldwin was appointed by Origin and he has been able to manage the company to Origin's advantage and clearly to the long-term disadvantage of minority shareholders. He has received big bonuses regardless of his company's poor performance.

The share price has been pretty much stagnant for the last 2 years and this is the result of poor performance and a shocker move by Mr Baldwin in 2008 that lost 40,000 customers for the company and led to a plateau in customer numbers that are fixed around the 600,000 mark.

The way Origin are managing Contact is a loser long-term. There is only so long you can milk the company of cash, pile on debt and have the share price stay at current levels.

All indications though are that this is what Origin are doing and they are doing it for cynical reasons.

They want Contact Energy on the cheap.


Contact Energy @ Share Investor

Stock of the Week - Reprise 4: Contact Energy Ltd
Stock of the Week - Reprise 3: Contact Energy Ltd
Long Term View: Contact Energy Ltd
Stock of the Week: Reprise 2 - Contact Energy
Stock of the Week: Reprise - Contact Energy
Not so fast Davy Boy
Still Watching Contact Energy
Beam me up Davy
Stock of the Week: Contact Energy
MarketWatch: Contact Energy - June 2009
MarketWatch: Contact Energy - Jan 2009
Contact Energy looks bright during dark times
Share Investor's 2009 Stock Picks
Follow the Monopoly Board

Discuss this stock at Share Investor Forum - Register free

Download CEN Company Reports


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c Share Investor 2010

Friday, October 1, 2010

Stock of the Week - Reprise 4: Contact Energy Ltd



If you have been following the share price of Contact Energy Ltd [CEN.NZX] over the last few years you would have noticed a good short-term trading pattern that many have exploited to make some fast money. Since March 2009 the share price has been up and down like a cheap K-Rd hooker on multiple occasions, ranging between around $5.50 at its lows to around $6.50 at its highs. (see chart above)

Since April 2010 though the stock has been trading at the lower end of this range and seems to be marking time for whatever reason.

If you look at the historical 10 year chart below you will see that the last time this stock settled at any share price range for an extended period was back in 2000-2001.

The historical nature of this stock is for it to keep climbing in share price.

Conclusion?

The market seems to be hanging back and waiting to see some news, either good or bad, that will move the share price in the appropriate direction.

As I have already said, CEN stock really has been marking time since March 2009 when the aforementioned trading pattern began but the tighter trading range of the last 6 months or so really has made this stock worth watching closely.

For those of you wanting this stock for the long term it will perform well and the probability that its majority owned Australian parent Origin Energy Ltd [ORG.ASX] will make a takeover move will be icing on the cake. Its current share price would make a move by the long termers a wise one.

On the other hand if you are one of those short term traders that have made money on this stock since early 2009 beware that the trading pattern has been broken and you could well see a dip below the $5.50 floor.

Happy investing!



Contact Energy @ Share Investor

Stock of the Week - Reprise 3: Contact Energy Ltd
Long Term View: Contact Energy Ltd
Stock of the Week: Reprise 2 - Contact Energy
Stock of the Week: Reprise - Contact Energy
Not so fast Davy Boy
Still Watching Contact Energy
Beam me up Davy
Stock of the Week: Contact Energy
MarketWatch: Contact Energy - June 2009
MarketWatch: Contact Energy - Jan 2009
Contact Energy looks bright during dark times
Share Investor's 2009 Stock Picks
Follow the Monopoly Board

Discuss this stock at Share Investor Forum - Register free





c Share Investor 2010