Contact Energy Earnings: Rising Electricity Prices Drive Profits Higher Again; Smelter Is a Risk

Narrow-moat Contact Energy had a strong first-half fiscal 2024, with underlying EBITDA increasing 26% to NZD 325 million on the previous corresponding period, or PCP. Management upgraded normalized fiscal 2024 EBITDA guidance by 3% to NZD 620 million on the back of the strong first half. We expect it to do a little better, based on monthly operating statistics to January, and increase our forecast by 2% to NZD 630 million, implying growth of 10% on fiscal 2023. We leave longer-term forecasts largely unchanged, with solid growth in coming years on completion of geothermal power station developments and further retail price increases. Overall, we forecast a five-year EBITDA CAGR of 8.6%. We maintain our NZD 8.20 per share fair value estimate and consider the stock fairly valued.