Great time to be connected

By CHRIS DANIELS

With rising profits and a special dividend, a new owner and a record high share price, it's good to be a Contact shareholder.

Profits for the past quarter disclosed yesterday were down slightly on the year before but point towards another bumper year with Contact's nine-month profits up more than 30 per cent.

Net surplus for the quarter was 13 per cent higher than last year at $45.3 million. After adjustments, it fell to $41.7 million, slightly lower than in 2003.

A special dividend of 10c a share will be paid next month, so tax credits can be used up before Australian company Origin Energy takes over the 51.2 per cent ownership stake formerly owned by US energy giant Edison Mission. This is being paid as an advance on the final dividend.

Past fortunes of Contact have been closely tied to how much rain was falling in the South Island. When lakes were low, the company made great profits from its thermal, gas-fired North Island power stations. When the rain fell, cheaper power was fed into the wholesale market from the hydro dams.

While this balance helps smooth out volatility, the company said it expected the present high level of hydro storage to "have a dampening effect on earnings for the remainder of the financial year".

Contact shareholders are now waiting for the takeover offer from Origin Energy, which it has to make after buying the Edison Mission stake last week. It is offering Contact shareholders the same price per share ($5.67) that it is paying Edison in the $1.68 billion deal.

Such an offer is designed to fail, since it falls well below the market price any shareholder can get if they want to sell. At the start of this year, Contact shares were trading for just under $5.40 each, before dipping to $5 in March before rising to more than $6 a share. They finished the week yesterday trading at a record high of $6.02.

Contact's largest rival, the state-owned Meridian, said yesterday that growth in electricity demand was still soaring with a nearly 5 per cent jump in the three months to the end of June. This jump was measured against the same three months in 2002, not last year, when there was a nationwide power savings campaign due to low lake levels. Year-on-year growth was 9.9 per cent.

High rainfall has this week pushed hydro lake storage levels to about 128 per cent of the average for this time of the year.

These high rates of demand growth are accelerating the quickening gap between power generated and what industry and households want. The search for new supplies of natural gas, which is one of the cheapest and environmentally clean ways of generating electricity, is the biggest priority for Contact.

It has full resource consent to build two new gas-fired power stations, in Taranaki and Otahuhu.