Contact Energy (CEN.NZX)
Contact Energy shares were up +2.1% yesterday after reporting its 2023 financial year result which was inline with investors’ expectations. What excited the market was better than expected guidance by management, and they expect part of Tauhara project to come online by 2024.
Contact announced a 21 cent per share final dividend bringing their full-year dividend to 35 cents. We see an uplift in Contact’s dividend over the medium-term, but it appears priced in given Contact now trades at $8.60 per share, a 2.5-half-year highs and 2025/2026 gross dividend yield of about ~6%.
We downgrade Contact down to a HOLD, and would not be buyers at current levels (we see attractive buying below $8.00), we see better value in Genesis (which trades at 9% gross dividend).
We will trim Contact from our Portfolio down from 5% to 4%, and allocate those funds to buying more Genesis increasing its portfolio weight from 4% to 5%.

NZ
Noting the big research houses are upgrading Fonterra Shareholders Fund. We remain agnostic to the prospects of dairy — too much of a commodity. Too many forces at play. Same view on Synlait and A2.
Speaking of Synlait, noting they reduced thier forecast base milk price for the 2023/24 season to $7.00/kgMS (prev $8.00/kgMS) citing subdued global macro activity, the slowdown of the Chinese economy and an increase in Chinese domestic production. Continued bearish view towards dairy.
Noting Lyttelton residents and business owners are bracing for next cruise/tourist season. The 2022/23 season saw more than 125,000 tourists disembark in the port town as cruise ships returned for the first time in more than a decade. Good read thru for Tourism Holdings, SkyCity, etc…
Australia
QBE Insurance shares were down as catastrophe claims came in higher than expected, offsetting strong revenue and margin growth. The company reported that the net cost of catastrophe claims increased to $699 million in 1H23. This represents 8.7% of net insurance revenue, up from 6.2% in the prior period. QBE is forecasting 2023 constant currency gross written premium growth of around 10%, and a combined operating ratio of around 94.5%, which excludes the upfront cost of the $1.9 billion reserve transaction. Still, see value at current levels, remain BUY rated.
US |
Italy’s Agnelli family has taken a stake in troubled technology firm Philips (we say technology because they formerly were best known for their light bulbs, but have now repositioned as a healthcare firm). They took the stake via their publicly listed HoldCo Exor NV – Exor trades at a ~40% discount to NAV (includes stakes in Ferrari, Stellantis, CNH Industrial and the Juventus Football Club). As always with these European holding companies, the question is how does the NTA discount gap get closed – share buyback?) Noting Buffett’s Berkshire has taken three new positions in homebuilders – NVR, D.R Horton and Lennar. We’re never ones to bet against Buffett, but we hardly like the economics of homebuilding – in NZ at least, both timber and glass volumes are down significantly YoY. Berkshire increased its position in Capital One and Occidental Petroleum (we’re buy-rated on OXY, no position on Capital One). |