UPDATE: Contact shares rocket up on capital return plans
By Pattrick Smellie
May 25 (BusinessDesk) - Contact Energy shares jumped more than 14 percent after the energy generator and retailer said
it had ditched plans for now to invest in geothermal schemes offshore and will increase returns to shareholders,
including a special dividend.
Contact announced a 50 cents per share fully imputed special dividend, payable June 23, and a new ordinary dividend
payout ratio of 100 percent of underlying earnings after tax. It also flagged the prospect of share buybacks if free
cash flow allows larger distributions in the next few years, when Contact has no significant investment plans in New
Zealand, where there is currently an over-supply of electricity generation.
The shares jumped 80 cents to $6.35 when trading opened on the NZX, having fallen 13 percent this year. They spiked as
high as $7.30 in early February in anticipation of a capital return at the half-year results on Feb. 16, only to plunge
when chief executive Dennis Barnes surprised investors by raising the prospect of offshore investment in offshore
geothermal plants rather than the expected capital return.
"Contact has concluded there are no material investment opportunities at this time that would sufficiently reward
shareholders and that the company can support increased distributions to shareholders," Barnes said in a statement to
the NZX today. "To reflect the fact that Contact will have limited capital requirements in the near term, Contact's
amended dividend policy will be to target an average ordinary dividend equivalent to approximately 100 percent of
underlying earnings after tax."
The company had previously targeted an 80 percent payout.
"To the extent free cash flow exceeds the distributions outlined above, and absent new domestic growth opportunities or
adverse market events, additional distributions will be made and are likely to take the form of share buybacks," Barnes
said.
After initially saying a supplementary dividend of 8.8235 cents per share on the special dividend would compensate
non-resident shareholders for their inability to access New Zealand imputation credits, the company said the
supplementary payment was to account for non-resident withholding tax.
(BusinessDesk)