Business

Contact Energy predicted to lift half year earnings

07:09 am on 22 February 2010

At least one broking house is picking Contact Energy will lift its half year earnings when the country's largest listed energy company reports on Tuesday.

Forsyth Barr is forecasting a profit of $102 million in the six months to December, as fuller hydro lakes in the South Island and rising retail margins boost the bottom line.

Operating earnings are expected to fall, however, as Contact has not been able to get cheap hydro power north to its customers due to transmission constraints between the South and North Islands.

It's also suffered from rising gas costs, and weaker electricity demand due to the downturn, while a hike in energy prices by Contact in late 2008 saw it haemorrhage customers, which it has only recently recovered from.

Contact has taken steps to reduce the effect of the weather on earnings, and expects to have its gas-fired peaking power station at Stratford and an underground gas storage facility ready by the middle of this year.

But another round of price hikes, which the company blames on the higher cost of gas for generation, also highlights its vulnerability, especially to rivals such as Mighty River Power, which is building renewable geothermal plants.

Investors will also be keen to hear more about the level of dividend payout, which Contact's chairman Grant King said would depend on Contact restoring profitability to more normal levels.

Contact refused to give a full year profit forecast at last year's annual meeting, though it said it was comfortable with analysts' forecasts of a profit of about $174 million.