CSFB yesterday said Auckland-headquartered Vector had solid revenue and earnings potential in Auckland and Wellington.

CSFB analysts said NZX-listed Vector, which was highly leveraged to connection and usage growth, combined with its dominance in the fastest growing area in New Zealand – the greater Auckland-Rodney region - offered potential upside.

But CSFB cautioned that the biggest risk to the valuation was any change to the currently “benign” electricity regulatory regime.

Vector last month reported announced an after-tax surplus of NZ$40.77 million for the June 2005 year. CSFB yesterday forecast Vector’s net profit for the June 2006 year to fall 5%, to NZ$38.8 million, before rising to NZ$50 million the following year.

New Zealand's largest electricity distributor, Vector is now also a major gas player since taking over NGC Holdings last month for NZ$3.40 per share – NZ$0.78 in cash and the rest in Vector’s IPO, priced at NZ$2.62.

Since listing Vector shares have traded between NZ$3.00 and NZ$3.37 and finished yesterday at NZ$3.27.

International ratings agency Moody's Investors Service also said yesterday that the outlook for the New Zealand electricity sector was stable, despite moves by regulators to crack down on pricing.

"The transmission and distribution regulatory environment in New Zealand continues to evolve, but should not adversely impact sector companies' credit," said Moody's analyst Clement Chong, adding that the overall environment remained stable.

"Companies' low business risks mitigate the high debt load evident in the sector, which has constrained ratings at the A to Baa range," he said.