But Forsyth Barr broker Damian Foster is sceptical about the quality of the result.
Releasing its half-year financial results, Contact posted a reported profit after tax of $96million for the period, compared with a loss of $116million in the pcp.
Operating earnings rose 3% to $261million but revenue was down 6% to $1.06billion, mainly caused by a 21% fall in wholesale electric sales.
The company will pay an unchanged interim dividend of 11c per share, imputed to 8c a share. That represents a payout ratio of 96% of underlying profit, which was $82million.
Mr Foster said, as usual, the commentary from the company was limited, although Contact indicated it expected to continue to reduce operating costs.
However, it expected to reduce operating expenditure by moving IT services to the cloud and from increased digital interaction with customers.
``We suspect the upside is relatively limited.
``There is a question mark around the quality of the result, with Contact continuing to report `transition costs' as abnormal.''
In the period, transition costs were $7million, up from $5million in the pcp. Given the consistent level of transition costs, it was questionable whether those costs should be treated as abnormal, he said.
Overall, the result had not surprised and there was little to suggest a material change to forecasts was required.
Contact chief executive Dennis Barnes said in a statement to the NZX Contact's earnings grew modestly with continued improvements in retail operating performance and an increase in the proportion of renewable generation.
``In a competitive market, delivering strong operational performance and providing value for customers and shareholders remains a focus.''
Free cash flow for the period remained strong at $141million, a reduction from the pcp, which included a tax credit driven by the closure of the Otahuhu power station, along with increased extractions from gas storage and the late collection of 2015 debtors.
Contact remained committed to maintaining an investment grade credit rating and continued to reduce its debt, this year by $21million in the period, he said.
Mass market electricity sales volumes were down by 110GWh as average electricity usage decreased due to above-average temperatures and newly-acquired business customers using less energy than those they replaced.
Average customer numbers were down by 1100 on the first half of last year due to continued elevated level of competition, including price discounting by large competitors and benign wholesale conditions supporting offerings by new entrants.
The reduction in mass market sales was largely offset by increased commercial and industrial sales, Mr Barnes said.
National electricity demand fell 2% in the six months, mainly driven by lower consumption in the residential sector and lower irrigation demand. Both Meridian and Mercury had earlier reported lower demand because of the weather.
Mr Barnes said warmer temperatures and above-average rainfall both contributed to the reduced electricity demand and also resulted in higher hydro generation, lower wholesale electricity prices and limited price volatility.
The flexibility of Contact's portfolio and low levels of contracted gas were an asset in the past six months.
``With high levels of renewable generation available in the market, we were able to reduce generation from our thermal plans and purchase lower-cost energy from wholesale market participants.''
Contact did not provide any guidance for the second half of the year.
Forsyth Barr had a full-year operating profit forecast of $522million, flat versus the pcp and $8million below the market consensus.
The current target price was $5.20 per share and the rating was neutral, Mr Foster said.
Contact last traded at $4.94, up 15c.
