Contact Energy Limited's (NZSE:CEN) Stock Has Shown A Decent Performance: Have Financials A Role To Play?

Contact Energy Limited (NZSE:CEN) has demonstrated a commendable stock performance, with a 6.84% increase over the past year. To understand the drivers behind this performance, let's delve into the company's financials and assess their role in CEN's stock price trajectory.

**Revenue Growth and Profitability Trends**

Contact Energy's revenue growth has been volatile, with a 35.17% increase in 2024 following a 15.73% decrease in 2025. Despite this volatility, the company has maintained a relatively stable profit margin, hovering around 6-8%. This consistency in profitability, coupled with effective cost management, has likely contributed to CEN's stock performance.

**Debt Management and Capital Structure**

CEN's financials also reveal a high level of debt, which could pose a challenge to its financial health and stock price. As of 2024, CEN's net debt to equity ratio stands at 1.19, indicating a significant reliance on debt financing. While this has not hindered CEN's revenue growth, it could impact its profitability and dividend payments. Investors should monitor CEN's debt management strategies and cash flow generation to assess the sustainability of its financial performance and stock price.

**Dividend Payouts and Growth**

Contact Energy's dividend payouts and growth have played a significant role in investor sentiment and stock performance. Over the past year, CEN's earnings grew by 85%, and its dividends grew by 5.71%, indicating strong financial health and investor appeal. The company's Snowflake Score, which assesses the quality of a company's financial health, past performance, and future growth, stands at 4/6, reflecting its solid financial position.

**Capital Expenditure and Asset Turnover**

CEN's capital expenditure (CapEx) has been relatively stable, with a 3-year average of NZ$350 million, indicating a consistent investment in growth and maintenance. Asset turnover, a key efficiency metric, has been improving, from 0.47 in 2021 to 0.52 in 2023, suggesting better utilization of assets. This improvement, coupled with stable CapEx, signals CEN's focus on operational efficiency and growth, contributing to its stock performance.

**Cash Flow Metrics**

CEN's cash flow metrics, such as free cash flow (FCF) and the cash conversion cycle (CCC), influence its ability to invest in growth opportunities and maintain financial stability. CEN's FCF has shown significant improvement, with a 45.40% growth in EPS and a 49.60% increase in net income. However, the company's FCF per share has fluctuated, with a negative value in some years. This suggests that while CEN has been generating cash, it has also been investing heavily in growth initiatives, such as its acquisition of Manawa Energy for NZD 1.8 billion. CEN's CCC has improved over the years, with a current value of -8.97%, reflecting the company's efficient management of working capital and its ability to generate cash from operations.

In conclusion, Contact Energy Limited's (NZSE:CEN) stock performance has been driven by a combination of factors, including revenue growth, profitability, dividend payouts, and capital expenditure. While the company's high debt levels pose potential risks, its strong financial health, efficient asset management, and cash flow generation have contributed to its positive stock performance. Investors should continue to monitor CEN's financials, particularly its debt management strategies and cash flow generation, to assess the sustainability of its performance.