Vector tipped for strong profit

Regulatory uncertainty means that the result Vector reports today is likely to be its healthiest for some time to come.

The Commerce Commission last week announced plans to impose price controls on the company's electricity lines business.

Forsyth Barr analyst Greg Main said the regulatory threat would overshadow what he believed would be a good result.

He forecast a strong fourth quarter for Vector given a range of factors, including cold weather driving demand for electricity and gas.

Main picked a net profit of $52.6 million on revenue of $1.107 billion and earnings before interest tax depreciation and amortisation (ebitda) of $586.7 million.

Forsyth Barr estimated that Vector's 2006 full-year net profit would be 28.9 per cent ahead of last year's result but that was distorted by the company's acquisition of NGC in December 2004.

Main said net profit, excluding amortisation, would be $150.9 million. The impact of a "worst case scenario" of an 11 per cent per annum reduction in tariff income could cut that figure to $113.2 million next year and $79.4 million in 2008.

That would reduce his firm's valuation on the company from $2.80 a share to $1.69.

Lowering the company's tariffs by 2 per cent would reduce net profit, excluding amortisation, to $147.8 million next year and $146.6 million in 2008.

ABN Amro was forecasting a net profit of $40.2 million and ebitda of $579.6 million while UBS expected revenue of $1.115 billion, and net profit of $47.1 million.

Vector itself had forecast net profit of $36.5 million and ebitda of $578.8 million in its prospectus last year but increased its full-year net profit target to $38 million-$43 million at the half year.

Meanwhile, one analyst who did not wish to named, said that the uncertainty over just how hard the commission would come down on the company meant "just about no one will care" about the result.

The stock as "uninvestable", he said.

"It's that bad - it's not a sell, not a hold, it's uninvestable. We just don't know what the rules are."

On Friday, credit ratings agency Moody's affirmed Vector's "Baa-1" underlying senior unsecured rating. But the company's outlook was revised to negative, from stable.

Vector's higher "Aaa" rating for its wrapped bonds remained unchanged, reflecting the claims-paying ability of its guarantors.

Moody's said Vector's unsecured rating reflected the company's solid cash flows from its electricity and gas distribution networks.