View Genesis faces forecasts challenge

Andrew Rooney
Andrew Rooney
Genisis Energy, the last of the government-controlled electricity companies to report its June results, faced a challenge to meet its forecasts, Forsyth Barr broker Andrew Rooney said yesterday.

The company declared an increased final dividend of 6.6c per share, taking the total dividend for the year to 13cps.

Mr Rooney said the higher-than-promised dividend had a ''me too'' feel about it.

''Given the operating result was barely above forecast, we are a little surprised by Genesis' decision.''

Genesis reported operating earnings of $307.8 million for the year ended June, 1% ahead of its listing forecast of $305.2 million but down 9% on the $336.6 million reported in the previous corresponding period.

The reported profit of $49.2 million was 18% ahead of forecast but well down on the $104.5 million from the previous period.

Mr Rooney said Genesis reaffirmed its operating profit forecast of $363.4 million.

''We believe this will be a challenging target for Genesis given the start to the year and the generally wet conditions, combined with lower mass market volumes than forecast.''

Forsyth Barr had a forecast of $341.5 million. While there was upside to that number, Mr Rooney said he would struggle to get to $363.4 million.

Unlike the other recently listed generation retailers, Genesis did not appear to have reduced costs materially.

Overheads for Genesis were $328 million versus Forsyth Barr's forecast of $329 and the listing forecast of $332 million.

An analysis of the balance sheet showed the operating profit provided a margin of 15.3% on revenue of $2 billion, down from a 16.3% in the previous period.

The 2014 profit was an 8% return on total assets of $3.63 billion.

Forsyth Barr had a target share price of $1.80 for the company and a neutral recommendation on the shares.

''While Genesis has a great dividend, it has the highest payout ratio in the sector and the highest gearing. In our view, it has some challenges to hit its 2015 forecast,'' Mr Rooney said.

Chairwoman Dame Jenny Shipley said it was pleasing to achieve the forecasts in a highly competitive energy environment.

Chief executive Albert Brantley said the Tekapo canal remediation programme was a highlight for the year.

''This was a project of national significance and the company completed it successfully, with the project finishing under budget at $136 million and 18 days ahead of schedule.''

In the past year, the company had taken advantage of its diverse portfolio to meet the challenging energy retail environment as well as lower demand on the back of above-average temperatures, a fall in wholesale electricity prices and reduced generation volumes, he said.

Labour Party energy spokesman David Shearer said the profit showed the power company was sold cheaply to the detriment of the country's power consumers.

''A net profit of $49.2 million follows hard on the heels of huge profits by Mighty River Power and Meridian.''

The Genesis profit was down on last year, but it was well above forecasts at the time of sale, showing the company was a ''golden goose'' with an increase in the final dividend for investors, he said.

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