Contact Energy Limited (ASX: CEN) shares are up more than 48% since January. Will its growth continue with the announcement of a new Chief Executive Officer, Mike Fuge?
Contact Energy is one of New Zealand’s leading energy companies, providing electricity, gas and broadband. Contact has a focus on sustainability with more than 80% of its total energy generation coming from renewable sources. This has allowed the company to reduce its greenhouse gas emissions by 59% since 2012.
CEO Mike Fuge
Contact Energy announced a new CEO this morning after the current CEO Dennis Barnes announced that 2019 would be his last year back in June.
Contact has appointed Mike Fuge as the new CEO to start no later than 16th March 2020. Mike Fuge is the current CEO of New Zealand Refining Company Ltd (NZE: NZR), where he has led a turnaround in safety performance and corporate strategy.
Prior to his current role, Mr Fuge was the CEO of Pacific Hydro, a Melbourne-based global renewable energy owner, operator and developer.
Can Contact’s Growth Continue?
Contact Energy shares are up more than 48% year-to-date and nearly 60% over the last 12 months, leaving the company just shy of a $6 billion market capitalisation. Contact reported strong growth in FY19 with its profit from continuing operations up 52% and underlying profit up 35% year-over-year.
Contact also increased its dividend by 22% in FY19 to 39 cents per share unfranked, giving the shares a trailing dividend yield of 4.39%.
The appointment of Mr Fuge may be taken positively with his extensive experience in renewable energy and leadership positions, however, in his current role he is the CEO of a company with a market cap of only $659 million, so Contact Energy will be a big change.
My Take
To be candid I don’t know enough about Contact Energy’s outlook to have a strong opinion. However, if you’re weighing up whether or not to buy Contact shares AGL Energy Ltd (ASX: AGL) may be a good comparison. AGL is a larger company and reported a similarly high growth rate in its FY19 report, although AGL shares trade on a price-earnings (P/E) ratio of 13.8 times compared to 17.2 times for Contact.
Contact also recently reported that New Zealand’s energy demands have remained stagnant since 2008, so the only opportunities for growth come from a growing market share or increasing electricity prices. That doesn’t sound like the type of company I’m looking to own for the long run.
I’d rather invest in one of the proven businesses in the free report below.
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Disclosure: At the time of writing, Max does not own shares in any of the companies mentioned.
