Energy infrastructure company Vector faced a challenging year ahead because of regulatory price cuts that had taken effect, Forsyth Barr broker Peter Young said yesterday.
Also, the legacy Kapuni gas would be ending. Offsetting that drop in earnings would be a lift from the metering business, as more smart meters were introduced, and the purchase of Contact's gas-metering business that took effect on July 1.
The Auckland-based company reported operating earnings of $630.5 million for the year ended June, up 0.5% on the $627.4 million reported in the previous corresponding period.
Revenue was up 2.1% to $1.28 billion from $1.25 billion and reported profit was up 2.3% to $203.3 million from $198.8 million. The total dividend was 15c a share, up 3.4%.
Mr Young said the make-up of the result was different than expected.
Electricity revenue and operating profit contribution was lighter than expected.
That was more than offset by better performances across all of the other divisions. Strong cost control appeared to have been a factor in the better-than-expected performance.
Vector chief executive Simon Mackenzie said it had made significant productivity gains through ongoing operational and process changes across the business.
''We are one of the lowest-cost providers of electricity distribution services on measures such as the cost of delivering power lines services to our customers and the average operating cost per customer.
''Unfortunately, customers' wallets are yet to benefit from these initiatives as regulation intended.''
From April, the company reduced prices on its residential electricity network by 9% or the equivalent of $60 per residential customer per year, he said.
However, only in the case of a small minority of energy retailers had those savings been passed on.
The goal of regulation was to create efficiencies in the business and Mr Mackenzie expected the gains made to flow through to customers as regulation intended.
Mr Young said Forsyth Barr had a price target of $2.57 a share on Vector and a recommendation of hold on the shares.
''At this stage, it is hard to see a material change to that view.''
The shares last traded at $2.65.
