Contact Energy Limited
CEN Details
Monthly Operating Report: Contact Energy Limited (ASX: CEN) is engaged in the generation and retailing of electricity. As per the April 2022 monthly report, the company’s customer business recorded mass market electricity and gas sales of 312GWh against 305GWh as of April 2021. In addition, mass-market netback stood at NZ$104.59/MWh as compared to NZ$106.11/MWh as of April 2021.
- The wholesale business recorded contracted wholesale electricity sales, including that sold to the customer business, stood at 622GWh.
- Electricity and steam net revenue amounted to NZ$98.69/MWh as compared to NZ$107.96/MWh as of April 2021.
Insights of 1HFY22: The below picture gives an idea of the company’s financial performance in 1HFY22:
Financial Summary (Source: Analysis by Kalkine Group)
Key Risks: The company is exposed to risks arising from the extreme change in the climate. In addition, the business is exposed to a more complex regulatory environment; any failure in the compliances could lead the business to fines, penalties etc.
Outlook: Looking forward, the company is planning to invest a further NZ$37 million into a new afforestation partnership to aid further carbon capture through tree planting.
Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)
Source: Analysis by Kalkine Group
*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
Stock Recommendation: The stock of CEN is trading below its 52-week low-high average of $6.650 - $8.270, respectively. The stock has been corrected by ~6.96% in the past month. The stock has been valued using a P/E multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in percentage terms). The company might trade at a slight discount to its peers, considering the COVID-19 uncertainties and other material business risks, etc. For valuation, a few peers like Mercury NZ Ltd (ASX: MCY), Meridian Energy Ltd (ASX: MEZ), and AGL Energy Ltd (ASX: AGL) have been considered. Considering the expected upside in valuation, rising sales, growing earnings, decent outlook, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of $7.040, down by ~0.424% as on 24 May 2022.
Markets are trading in a highly volatile zone currently due to certain macroeconomic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.
CEN Daily Technical Chart, Data Source: REFINITIV
Note 1: The reference data in this report has been partly sourced from REFINITIV
Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.
Technical Indicators Defined: -
Support: A level where-in stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest.
Resistance: A level where-in stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest.
Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.
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