By Mark Reynolds
Between the lines
"Have you sold your Contact shares yet?" That was the question cosmopolitan-chic magazine Metro asked its readers in this month's issue.
Okay, it was only number 11 on a list of 20 questions. But the fact that a trend-slave like Metro could safely assume its readers would know about electricity company Contact Energy, and probably had invested in it, is a measure of the intensity of interest in the Government's privatisation of the company.
Contact was to be an election-year gift to the community - a bounty of cut-price popular capitalism that would ripen nicely through the year for the Government to harvest at the ballot boxes in November.
Certainly the general public bought into the vision. About 225,000 New Zealanders - more people than have ever bought shares in a single company here - handed over at least $1000 for some shares.
Demand was so high that the sale price was upped to $3.10 a share, from earlier expectations of no more than $3.
For about 15 seconds on the first day the company traded on the stock exchange Contact was the golden apple the Government wanted. The shares listed at $3.55.
But the situation quickly turned pear shaped. It began with overseas investors, who had been allowed to buy an overly generous 37 per cent of the shares sold in the public offering, making a quick buck on their large investments.
Then local institutional investors, who were expected to acquire Contact shares, stopped buying because interest rates were rising and they could expect to get more money from a bank deposit than a low-dividend stock like Contact.
Then over the past few days Contact has been hit by politicians talking about new power regulations possibly including competitive retailers and generators like Contact.
All of these negative pressures have conspired to see Contact shares close at $3.05 on Friday, below the issue price of $3.10.
But hold on. The share price has dropped at a time when wholesale power prices have been bolstered by increased winter demand and unusual generation and transmission constraints that benefit Contact. The constraints have caused power companies to use more gas, much of which they have to buy from Contact.
And just last week Contact reported its half-year profits were much higher than expected, with its full-year earnings likely to be 10-15 per cent ahead of its prospectus forecast. The final dividend was expected to be 1c-2c a share higher than proposed.
Certainly Contact is no longer providing the short-term gains of its initial listing, but come the end of the year Metro might well have reason to ask: "Did you hold on to your Contact shares?"
