Energy stocks fall as Contact raises capital

Renewable energy stocks led the market lower as Contact Energy announced a $400 million capital raising to fund a new geothermal plant.

Monday, February 15th 2021, 6:09PM

by BusinessDesk

The S&P/NZX 50 Index declined 79.1 points, or 0.6 percent, to 12,510.56. Within the index, 33 stocks fell, 9 rose and eight were unchanged. Turnover was $97.7 million, lighter than usual.

Contact Energy was placed in a trading halt at $7.20 prior to the market opening, when it announced it would seek to raise $325 million in an underwritten placement to institutions and $75 million via a retail offer.

The placement will be $7 a share, and the retail offer at the lower of either $7 or a 2.5 percent discount to the five-day volume weighted trading average.

Contact also reported improved earnings, up 11 percent to $246 million in the six months ended Dec. 31, although it’s paying a smaller interim dividend of 14 cents per share, down from 16 cents a year earlier.

Peter McIntyre, a financial adviser at Craigs Investment Partners, said the new plant sets up Contact’s portfolio for the transition to 100 percent renewable energy.

The capital raise price was “a little on the skinny side, but they are confident they can get it away,” he said.

“Obviously brokers are confident about the future of the business and price targets,

“It's not a big discount, but I think it’ll be enough to get it across the line. A number of brokers across New Zealand have a $9+ price target on it.”

The renewable energy sector has pulled back after being bid up by global ETFs, and moving the rest of the market up and down with it.

Mercury NZ led the market lower, falling 5.4 percent to $6.43. Trustpower declined 3.5 percent to $8.35, Genesis Energy dropped 2.8 percent to $3.70, and Meridian Energy fell 2.4 percent to $5.67.

McIntyre said there may be some “rotation” occurring, with investors selling other utilities to put aside money to put into Contact’s capital raise, but prices had been falling anyway as the sector reverted to more rational pricing.

“Our market got ahead of itself a little bit, it was driven by strong ETF buying in those gentailers which lifted the whole market along,” he said.

The re-emergence of covid-19 in the community appears to have steered investors away from the most pandemic-affected stocks.

Vista Group International declined 2 percent to $1.45, Auckland International Airport fell 1.6 percent to $6.79, SkyCity Entertainment was down 1 percent to $2.94, and Air New Zealand slipped 0.3 percent to $1.56.

Tourism Holdings bucked the trend, unchanged at $2.15. Australia and New Zealand Banking posted the day’s biggest gain, up 2.1 percent at $27.22.

For the third week in a row, the Reserve Bank of New Zealand bought a reduced rate of $570 million worth of NZ government bonds.

BNZ interest rate strategist Jason Wong said the market will be interested in next Wednesday’s monetary policy statement for an update on the programme.

“The need for the RBNZ to maintain such a high purchase rate is fading, so some tapering seems likely over coming months,” he said.

The kiwi dollar had a strong start to the week, trading at 72.40 US cents at 5pm in Wellington, up from 72.16 cents on Friday.

The trade-weighted index was at 74.79 at 5pm, from 74.67 on Friday. The kiwi traded at 93.01 Australian cents from 93.19 cents, 76.04 yen from 75.63 yen, 59.66 euro cents from 59.53 cents, 52.08 British pence from 52.32 pence, and 4.6728 Chinese yuan from 4.6574 yuan.

Tags: Market Close