Contact Energy has surprised the market with a $50million downgrade to its full-year 2016 guidance, following the combination of several one-off items.
Forsyth Barr broker Suzanne Kinnaird said Contact was downgrading its full-year 2016 guidance on earnings before interest, tax, depreciation, amortisation and financial instruments (Ebitdaf) from around $575million to about $525million.
She said Contact's current stock rating was an "outperform'' recommendation, with a target price of $5.65, but both were now under review.
Contact shares were down 3.4% at $4.83 following the announcement.
In Contact's monthly operational data report, released yesterday, it said competition for mass market customers remained intense, and although sales volumes were in line with the year before, tariffs were lower than expected.
"The lower tariffs were expected to be offset by cost reductions and while progress has been made, costs primarily related to bad debt and those associated with the separation from [former cornerstone shareholder] Origin Energy are higher than expected,'' Contact said.
Mrs Kinnaird said several factors contributed to the lower guidance, but in essence it appeared to be a combination of one-offs, with positives taking longer than expected to come through and poor forecasting by Contact.
Some of those costs included $10million in higher bad debts and higher costs in the separation from Origin, lower mass market pricing than expected, rising from $2million to $7million, running gas storage for cash and not profit, costing $6million, and lower commercial and industrial sales pick-up, costing around $5million.
"Looking ahead to full-year 2017, Contact has indicated that the consensus range of $570million is at the top end of its internal forecast range, hence there will be a permanent hit to earnings,'' Mrs Kinnaird said.
The November Ebitdaf was, "unsurprisingly disappointing'', and after adjusting for the Te Mihi payments received in full year 2015, was $2million down on a year ago.
Contact said its November performance was impacted by low hydro inflows, and an extended outage at the Te Mihi power station, which returned to service on November 30.
Contact's commercial and industrial sales volumes were lower than the year before with wholesale contract sales not fully offsetting the shortfall, the company said.
