Dual-listed New Zealand energy utility Contact Energy, or CONTACT EN FPO NZX (ASX: CEN), reported its half-year results to the market this morning. The period saw a return to profit after last year's impairments, as well as modest reductions in debt and an increase in earnings. Here's what you need to know:
- Revenue fell 7% to $1,039 million
- Earnings Before Interest, Tax, Depreciation, Amortisation, Change In Fair Value of Financial Instruments and Other Significant Items (EBITDAF) rose 3% to $261 million
- Net Profit After Tax (NPAT) rose 183% to $96 million
- Underlying Net Profit After Tax rose 12% to $82 million
- Dividends of 11 cents per share announced
- Cost of energy fell 7% compared to prior half and the energy mix improved to 84% renewable (78% previously)
So What?
Contact also reported a big improvement in its Net Promoter Score (NPS) and safety performance over the past 6 months. Revenues fell due to customers using less energy (partly due to warmer weather) although a 10% decline in operating costs delivered a big boost to profits.
New operational initiatives including migration to the cloud are expected to result in further operational cost savings, and debt is steadily declining towards management's target range of 2.6 to 3.0 times EBITDA.
Now What?
Similar to other utility providers like AGL Energy Ltd (ASX: AGL), which reported last week, Contact Energy is a mature business generating a lot of free cash flow. This allows the company to safely carry a sizeable amount of debt, and pay attractive dividends.
Although Contact's dividend payout ratio was 96% of underlying profit, it equates to about 75% of free cash flow. While this appears sustainable, it's uncertain if the company will be able to grow its dividend – first half dividends have been flat at 11 cents per share for the past five years. In my opinion the company doesn't have anything outstanding to offer investors at today's prices.
