2016 Guidance Affirmed, page-103

Franking credits:

This is just what I remember:

There was only 643K paid in 2015. I presume that was used up in the last partially franked dividend.

The big franking credit pool came with the purchase of the balance of the Oakley power station when they received $20 million franking credits. those are used up.

Once all the gas exploration ... is out of the business it should improve the results and franking credits should build up to the extent tax is paid here.

The big issue is that with margin pressure and the constant revaluation to market of future electricity supply contracts gives rise to a spotty financial profit in each year. Seeing as the growth in supply is plateauing I expect it to stabilize.

However given the margin issues its likely that we are going to have a period of no franking funded out of cash flow rather than after tax income.

So my model suggests that we will continue to get lower franking - I estimate it at around 50% in good years if they pay 12c and earn around 16c ( having reduced the margin from around $4.98 to $3.00 in my model but increased the income from USA). Personally the payout ratio is a bit high and I would rather they dropped it as the share has gone as low as I can afford - not meant to be funny but realistically this has not been a pleasant experience and I did not buy at the CR price of $2.53... when they purchased Oakley.

The fact is that if the earnings start coming from the USA we may well get back (or keep) to our 12c comfortably but with zero franking. I think it all depends on the next few years. The accounting treatment that revalues and devalues their forward purchase contracts to spot pricing but does not value the supply contract pricing is an accounting mess that makes valuations difficult at the best of times.

In reality if this company is worth only $215 million and Oakley fully paid for no debt and has hardly worked has a replacement cost of $300 million that says it all. The reality however is that management need to step up and deliver a plan to the next AGM that we can understand. What about all the other assets ... and the wholesale electricity supply business...

Either we dont have a business - which I doubt or management need to fix this.