Thursday, August 18, 2011

Contact Energy look set to gain customers

Contact Energy Ltd [CEN.NZX]finally looks like things are going its way. There are record cold temperatures across the nation and record power use. More retail customers of theirs will be using power and as the country's largest generator of electricity the company will be selling their product into the market to its competition at peak prices.

Add to this the little known fact to the consumer -it is bizarre that the company is not making much of a song and dance about it - that their power prices are now the second cheapest in the country after they introduced a 22% discount on August 1 for customers who pay promptly. Last month their power prices were the most expensive.

This comes after 3 years of losing customers, approx 50,000 off their peak, just last month alone they lost 8000 customers. They have been uncompetitive, given poor service and have been embroiled in public gaffs.

All this of course has had a big impact on the Contact share price (see 1 year chart below) From $5.80 in January shares have plumbed the depths well below 5 bucks over the last 2 weeks of market turmoil to finish trading yesterday at $5.02c. This is a fall of just over 15% in 2011 alone and off a 3 year high of just over 9 bucks.

1 year CEN Chart

If the marketing department get off their backsides and actually tell people they are now one of the cheapest electricity suppliers rather than one of the dearest the market will see a good spike in operational results for the month of August and CEN will do a reversal of fortune in terms of its share price.

We can expect the competition to react to Contacts discounting after the August stats come out in early September, if not sooner so the consumer could well be the winner as electricity companies fight for customer numbers and reduce their margins in the process.

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