The sharp rise in Vector's share price was an overreaction to tax news put out by the energy distribution and fibre optic network company, Forsyth Barr broker Peter Young said yesterday.
Vector's share price traded yesterday at $2.16, up 5c on Monday's close.
"This is a major overreaction to the tax news that Vector put out this morning saying that because of deferred tax its profit will be $21 million higher in full-year 2010.
The deferred tax movement is non-cash and as such has no impact on value," he said.
Vector said in a statement to the NZX it had recently received advice from its external auditors on the appropriate accounting treatment for the tax changes.
The deferred tax liability reduced and as a result that increased reported net profit after tax an estimated $21 million for the year to the end of June.
The deferred tax liability adjustment was a one-off, non-cash accounting entry and had no impact on Vector's underlying profitability and cash flows, and therefore its dividend policy.
A move in the Budget to make capital contributions taxable from May 20 would reduce net profit after tax for the 2010 financial year an estimated $1 million, Vector said.
Mr Young said as noted in a Forsyth Barr tax note of a couple of weeks ago, the tax changes were largely neutral for Vector - 28% rate positive, offset by depreciation changes and taxing of capital contributions - and yesterday's share price movement was an overreaction by the market.
No movement would have been more appropriate.
"With the draft regulatory decision only a matter of days away, and the inherent risks contained in that, I would view this as a selling opportunity," he said.
