Long Term View: Contact Energy Ltd

In this series of posts I am going to be looking at stocks listed on the NZX in relation to their returns to shareholders over the life of their listing -what shareholders would now see in their back pockets if they had invested in the company IPO.

The calculation of returns includes dividends and tax credits.

Contact Energy Ltd [CEN.NZ] has been good to its shareholders in terms of returns since its NZX listing in 1999 at NZ$3.10. With NZ$2.46 cents in net dividends (see chart above) paid and another 33% of that figure gained for those eligible for associated tax credits, a slightly less than 200% return (see chart below for the share price percentage gain against the average of all NZX indexes) over the 11 year listing gives an annual net return of just over 18%.

This is more than double than the return from the average of all NZX indexes.




Long Term View Series

Auckland International Airport
Air New Zealand
AMP Ltd
Briscoe Group Ltd
Contact Energy Ltd
Delegats Group Ltd
EBOS Group Ltd
Fletcher Building Ltd
Fisher & Paykel Appliances
Fisher & Paykel Healthcare
Freightways Ltd
Goodman Fielder Ltd
Hellaby Holdings Ltd
Mainfreight Ltd
Metlifecare Ltd
New Zealand Refining Ltd
Port Of Tauranga Ltd
Pumpkin Patch Ltd
Restaurant Brands Ltd
Ryman Healthcare Ltd
Sanford Ltd
Sky City Entertainment Group Ltd
Sky Network Television Ltd
Telecom NZ Ltd
Telstra Corp Ltd
The Warehouse Group Ltd


Contact Energy @ Share Investor

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Reporting season wrings out the Profits

With the notable exception of a couple of NZX listed companies the current reporting season has been a case of squeeze until your business expenses fill your cup.

Apart from the fact that it is a good idea to keep running costs low during an economic downturn (it would be nice to do the same during the good times as well) cost cutting can improve efficiency and show up where the company might have been holding some fat around its hips.

Profits have mostly been flat to slightly down, with some good rises over the last half year; Sky City Entertainment Group[SKC.NZ] Michael Hill International [MHI.NZ] and Sky Network Television [SKT.NZ] are some recent examples of excellent profit rises.

A large number of companies though have reported reasonable profits on flat to down revenue and a number of capital raisings in 2009 have been responsible for lower interests costs on borrowings that went straight to the bottomline.

How long can companies wring these sorts of results out of cost savings?

I think the bulk of savings have already been made for most but expect more companies selling and leasing back offices if they haven't already, consolidating branches and staff and continuing to put off capital expenditure.

The problem with this is that if cost savings go too far, in the long term it can affect the future of the company in question.

Telecom NZ [TEL.NZ] is a prime example of underinvestment in its business and over a long period this had led to its current demise.

Companies need to find a balance between expense savings and capital expenditure in order to progress further when the economy rebounds - whenever that will be is anyone's guess.

There is little doubt though that most of the savings have already been made (with the notable exception of executive pay and directors fees) and the next reporting season that kicks off in August will show that profits will be down due to the lack of fat to be cut.

Relying on more costs cuts for profit boosting will disappoint, as will increased revenue levels except in a number of rare cases.


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c Share Investor 2010