Forsyth Barr is staying with its buy recommendations for shares in both Contact Energy and TrustPower, despite about $413 million being wiped off the combined value of the two electricity companies.
Forsyth Barr broker Peter Young said the main talking point in the electricity sector in April was the launch of a Labour-Green electricity policy focused on the potential implementation of a single electricity buyer model.
''The future implications are far-reaching, while the uncertainty caused by the policy announcement has already reduced Contact and TrustPower's market value.''
The single-buyer model had the sole intent of reducing the amount hydro generators received and passing those ''savings'' on to consumers, he said.
Achieving lower electricity prices of about $300 per household a year required a $700 million reduction in generation revenue.
''The new policy is a simple wealth transfer from investors to electricity consumers and is clearly negative for investors. We believe this will chill future investment in New Zealand.''
April appeared to be a reasonable month for Contact, Mr Young said.
Overall generation volumes were about the same as March but more expensive generation was operated and the cost of generation increased.
Of some concern was the fall in geothermal generation.
Looking ahead, rain in late April and early May had caused lake levels to improve and Clutha generation recover. The rain had also affected wholesale electricity prices and fourth-quarter future electricity prices, both of which had eased, he said.
The weaker wholesale electricity price outlook, and the drop in geothermal generation, had led Forsyth Barr to pull back its full-year 2013 operating profit forecast by $5 million to $508 million. About $3 million of that drop was because of the reduction in the geothermal generation assumption.
''While we are pulling back our short-term forecast slightly, there is no change to our long-term views and our target price is unchanged at $6. Our recommendation is unchanged at 'buy'.''
The capital returns Contact was considering, plus the improved earnings because of the start of Te Mihi generation, would push the gross dividend yield above 8% next year, Mr Young said.
TrustPower was reporting its full-year result tomorrow and more information would be available at that time. However, it appeared that April was a better month for TrustPower.
Increased wind generation would have helped and its hydro generation was once again helping it hit peak prices.
TrustPower had good growth opportunities unrelated to the New Zealand electricity market and had a strong track record of delivering on its capital projects. In addition, the gross dividend yield remained attractive for those seeking yield, he said.
