While Contact has said it will make a decision within six months, in the shorter term it now runs the risk of a sustained shareholder revolt.
Analysts and the market were taken by surprise by the Monday announcement that Contact was looking at investing $1 billion, being generated over the next fives to eight years, in Pacific Rim geothermal projects, when there were market expectations of a share in the forthcoming cash kitty.
On Monday, its shares were sold off and the price declined 9% ($450 million) to $6.30.
Yesterday, they fell further, to $6.27.
Craigs Investment Partners broker Peter McIntyre described the announcement as a ''curve ball'' to shareholders and the market alike, while Forsyth Barr broker Andrew Rooney said it was a ''shock'' to shareholders and he was ''sceptical'' there were attractive returns available offshore.
Mr McIntyre said Contact's half-year result was ''bushwhacked by the growth aspirations'', and any justification for going offshore was ''weak at best'', and otherwise a ''poorly managed decision''.
''There's always concern when a New Zealand company signals it wants to go offshore and commit large amounts of capital,'' he said, in reference to numerous failed bids in recent decades.
As with other analysts, Mr McIntyre highlighted Contact's largest shareholder is Australian company Origin Energy, which has geothermal interests in Indonesia, and could be perceived as exerting influence on Contact.
He said given shareholders had patiently waited out several years of capital expenditure of hundreds of millions of dollars, a return to them was on the cards.
''The company has been on record as indicating that when the free cash finally emerged, after a long period of capital spending, it would be returned to shareholders,'' he said.
Mr Rooney said the option to go offshore had increased Contact's risk profile, given offshore investment carried more risk than investing in assets in New Zealand.
''Contact has not only shocked investors with its decision to keep the interim dividend unchanged, at 11c per share, but also because it wants to consider investing in undefined offshore geothermal opportunities,'' he said.
Following the 9% price plunge, Mr Rooney said Contact's stock was re-rated from ''underperform'' to ''neutral'', and the 12-month target price was reduced 20c, to $6.60 per share.
''Fundamentally, the value of the New Zealand business hasn't changed, hence we do not expect further large price falls,'' Mr Rooney said.
Craigs also reduced its 12-month target price to $7.92, but maintained a ''buy'' rating.
Mr McIntyre said several issues could have influenced Contact's decision, including lack of growth opportunities in New Zealand, increased competition in retailing and an oversupply of electricity.
He also noted the uncertainties that surrounded the future of the aluminium smelter at Tiwai Point near Bluff, given it purchases about 15% of New Zealand's electricity output annually, through Meridian Energy.
