Vector's $50m gas revenue risk
The listed energy company may take a huge revenue hit and dividends could drop because of Commerce Commission regulation.
Listed energy company Vector may take a $50 million gas revenue hit and dividends could drop because of Commerce Commission regulation.
Broking firm Forsyth Barr says the commission's draft gas price adjustments, to be released next Wednesday, could be "potentially hefty" for the NZX-50 company.
ForBarr analyst Andrew Harvey-Green says in a research note a price cut of almost 30% might be necessary, spread over a number of years, to bring returns into line.
He says with a price cut of that magnitude, Vector's earnings will take a "significant amount of time" to recover if it takes a roughly $50 million hit to revenue and EBITDA.
"Of key concern is what will happen to Vector's dividend if there is a significant price cut.
"At the very least, maintaining the current dividend path would be uncomfortable."
Considering about $1 billion of retail bonds mature in November, ForBarr is recommending shareholders sell before the commission decision is released and buy back at a lower price.
Vector is pursuing a Supreme Court appeal about gas and electricity starting price adjustments, which ForBarr says could delay when they can be imposed.
The Auckland-based utilities network owner reported flat topline earnings after tax of $198.8 million for the year to June 30.
The commission says it regulates price and quality of gas to ensure suppliers do not earn excessive profits and ensure consumer quality demands are met in a market which has little prospect of competition.
Vector's external relations manager, Sandy Hodge, says ceo Simon Mackenzie will comment once the draft adjustments are announced.
Vector shares (NZX: VCT) last traded at $2.82 and have gained 14% this year.
David Williams
Wed, 17 Oct 2012
Wed, 17 Oct 2012
© All content copyright NBR. Do not reproduce in any form without permission, even if you have a paid subscription.
Vector's $50m gas revenue risk
24687