Contact Energy looks bright during dark times

Electric companies are good
buys during times of turbulence.

With most media talking about the NZX and global indices's taking a bath since 2008 began, I thought I would take the initiative to write about business rather than the headless chooks that are dumping their stock, even though I have commented on the sad state of affairs of the current market tumbles.

Given that most stocks on the NZX have been routed recently there are some relative "bargains" worth a second look.

One that springs to mind given the very hot weather we have had in the North Island and the relative dry that the South Island has been experiencing is Contact Energy[CEN].

Contact's share price has been dropping from its high of NZ$9.70 towards the end of last year down to $7.97 today and is somewhat of a hedge against the turbulent times that we are currently experiencing.

Its profits will not be as negative as other consumer stocks in an economic downturn because people will still be using power and Contact is well placed in this respect.

It posted a full year profit to June 30 of NZ$239.6 million and is expected to report a net profit of NZ$220.8 million in the current fiscal year according to Reuters.

As I mentioned earlier, the extreme hot weather in the North Island, specifically in Auckland, where Contact has a large number of customers among its 650,000 odd, the air conditioning is bound to be running at full tilt.

Coupled with this, the dry Otago weather is good for Contact as Hydro power, which is the benchmark for power prices, will be more expensive to produce and cost consumers more but Contact has the edge because it has a large number of non hydro power stations, most notably their Otahuhu gas fired power station, and its geothermal belt around the centre of the North Island.

While there are a number of negatives the company faces, increasing gas prices and availability and the shut down of their New Plymouth power station, costing Contact $25 million in lost profit for the full 2008 year, the positives distinctly outweigh these negatives.

The probability that Contact's majority Australian owner, Origin Energy, will make another bid for the company is also another reason to pick up some of this stock because they would have to pay well north of 9 bucks to get it.

The sureness of a continued good cash flow and profit during uncertain economic times makes Contact worth a second look and the share price is at a more reasonable level for investors to make a good long term profit once some certainty returns to global sharemarkets.


Hopefully that will be soon.


Essential Links

Contact Energy Investor Centre
Origin Energy Corporate Website


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c Share Investor 2008

Anti smacking law puts young boy at risk

The New Zealand Labour Party's chickens have finally come home to roost in a monumental way. The removal of section 59 or the "anti smacking bill", as it has become commonly known, midway through last year, has had another casualty, perhaps the worst one so far.

A Christchurch father who disciplined his 3 year old son who put his younger brother at risk, and was subsequently injured, was surrounded by six police officers minutes after a teacher(who would have guessed) witnessing the flick of the ear by the father informed an off duty female cop.

The father has been left with a warning by officers and a "black mark" noted on police records for attempting to keep his children safe from harm.

Apart from the obvious overkill by the six police attending and the stupidity of the off duty officer and teacher, the trauma that the 2 kids must have gone through seeing their father subject to extreme police harassment cannot be overstated.

The father's children will be getting a lesson from the whole incident that their dad has done something wrong, and that the lessons that he is trying to teach them are not to be believed.

When you undermine a parents authority in such a public way you risk that parents ability to bring up children in an appropriate way and ultimately keep them safe from harm, be it physical, psychological or emotional.

The politicians who trumpeted this sleazy law, Sue Bradford, Helen Clark and the various state bureaucratic heads and b grade celebrities, with the moronic support of the National Party are embarrassingly silent about this latest turn of events.

Those in support of the bill said that nothing like this would happen, it has, and after all, the sensible and intelligent amongst us we know it was designed to stop what this father did.

Those that supported this law change unflaggingly, should be voted against in the 2008 Election.

Labour, NZ First, The Maori Party, Progressives and Peter Dunne's Motley Crew do not deserve your vote on this law change alone.

John Key must be true to his word and repeal this change to sensible parenting and put the control of parenting back where it belongs.

In parents hands.


Related reading on Political Animal:

Trevor Mallard's Anti Violence Advert


C Political Aminal 2008

A sensible approach to global market volatility

Sell, sell, sell!!




The NZSX 50 was down 48 points today and is at its
lowest point since November 2006. Other global indexes
have also been markedly negative since Jan 1.



New Zealand and global sharemarket investors seem to be telling their brokers right now.

Global indexes have suffered from a New Year hangover that has seen values drop by an average of around 5% since January 1.

For sure there are underlying issues surrounding sub prime loans affecting credit flow and therefore investment, high inflation and oil prices but hang on a second, is that the end of the world?

Investors have to ask themselves why they bought their stocks in the first place and if the only criteria that has changed are the current macro conditions that currently exist and they will have no direct, disastrous affect on the fortunes of the company you have plunked money into, then following the sheep to your broker's door is only going to make him richer in the long run.

Why don't you follow your own research and perhaps stock up on companies that you already have shareholdings in?

Most serious wealth is created for investors when they buy assets during down periods such as the present one.

The worlds most successful investor, Warren Buffett, uses this very approach to add to his ever increasing large holdings and enter new businesses and it is one backbone to his investing style that has done him well.

The tricky part is of course choosing the right time to buy in a declining market and that is probably the hardest part of "picking a bargain", because the share price could be even cheaper next week, month or even year but if you can get shares in a good company that you already own cheaper than your initial purchase then you are doing well.

If you are feeling nervous at all about current market volatility on the downside and you are so worried that you cant sleep because your portfolio is losing value, then you should either stop checking stock prices every minute or simply get out of the stockmarket, because it isn't for you.

The market is risky and continued stock price increases are not going to be the status quo and if you have a short term view of investing then you are going to be continually disappointed and worried!

I think global markets are set for continued negativity for 2008 and a slow recovery in 2009, until we see the full exposure of the sub prime fallout mid year.

Until then just hang on and maybe even get the checkbook out little bears.



Related reading from Share Investor

Research, research, research
Current Credit Crunch a blessing in disguise
Leaders must come clean to restore trust in credit market
Fear and Greed are lovely things
What is Warren Buffett doing?
Global credit squeeze: There is no free lunch
Panic! Wot Me?
Global Markets dropping and your portfolio
Watch for dead cats bouncing




C Share Investor 2008

Sky City Entertainment share price drop

The share price of Sky City Entertainment has had its own run of bad luck over the last few days.

While the NZX as a whole has been very weak on low holiday volume today, the SKC share price was down 9c to finish on its days low of NZ$ 4.33 on 3 million plus shares, excellent turnover for this stock on any day.






This 5 day chart from Yahoo tells the grim story and is clearly an indicator of something material at play.

The clear winner is that nobody is going to buy the casino company. The market knows that the prospect of this has been tenuous at best anyway, however insiders might know this as a certainty and are dumping holdings.

The other possibility is that a sale has been made of their cinema division and the price is low or bids are low, or management haven't found a buyer and are left with a small white elephant.

Another dreary thought is that half year profit, to be announced around the 20th of February 2008, is going to be lower than forecast, first half 2008 ended 31 December 2007. The market would have to know if profit is going to be materially lower though.

Either way insiders are selling down and bad news looks to be on the cards.

Blackjack anyone?

Disclosure: I own SKC shares


Share Investor articles on Sky City:

New Broom at Sky City set to sweep
Sky City Management: Blind, deaf and numb
Sky City sale could be off
Opposition to takeover
Premium for control
Sky City receives takeover bid
Sky City Casino Full Year Profit to June 30 2007
Setting the record straight
Sky City CEO resigns
Sky City Casino: Underperforming
Sky City Casino 2007 HY Profit(analysis)
Sky City Casino 2007 HY Profit


C Share Investor 2007,2008