Mixed first half results expected

Varied outcomes are forecast as New Zealand electricity companies begin reporting on their first...
Varied outcomes are forecast as New Zealand electricity companies begin reporting on their first half performance. Photo from ODT files.
First-half results from the New Zealand electricity companies are likely to be mixed, with Meridian Energy, reporting today, set to be the standout performer, Forsyth Barr broker Peter Young says.

Aside from the results, the other main interest would be on the dividends of Contact and Meridian, with both expected to lift dividends and provide more clarity on their future dividend policies.

With favourable operating conditions and earnings kicking in from Australia, Forsyth Barr forecast Meridian to increase its operating profit by $42 million to $310 million.

Given the strong South Island hydro conditions and Te Mihi volumes, Contact's expected result being lower than the previous corresponding period was disappointing. Genesis' better first half performance was mainly due to the lack of one off costs compared with the first half of last year.

''While operational performance is likely to be mixed, we are forecasting all of the companies to lift their interim dividends,'' he said.

Contact Energy

Monday, February 16

Forsyth Barr was forecasting an $8 million fall in the first half 2015 operating profit to $256 million. A key driver was higher lines charges, not being passed on to consumers, offsetting favourable generation.

There would be a bigger fall in the reported profit due to increased depreciation and interest costs, both due to the commission of Te Mihi.

''Our rating is underperform. Like all electricity companies, Contact has had a very strong run and is now trading on elevated multiples. In our view, investors are not getting good value for risk at the current share price.'' Mr Young said.

Meridian Energy

Wednesday, February 18

Meridian was expected to produce the ''standout'' result of the electricity companies in the first half. There were several factors behind the improved performance, with contract revenue and the commissioning of the Mt Mercer wind farm the two largest factors. However, the main focus for the Meridian result would be its dividend announcement, Mr Young said.

The ordinary dividend forecast assumed a 78% free cash flow payout ratio. While not explicitly included in the dividend forecast, Forsyth Barr was also expecting Meridian to announce a special dividend of between 5c per share and 10cps, following a review of its capital structure.

''Meridian has had a very strong run and is now trading on elevated multiples. In our view, investors are not getting good value for risk at the current share price.''

Genesis Energy

Tuesday, February 24

Genesis had experienced a difficult first half with the expected operating improvement mainly coming from the lack of one off costs, Mr Young said.

Lower retail sales and continued low North Island hydro volumes had impacted negatively, as had Kupe oil reserves.

Forsyth Barr was forecasting first operating profit to be up $17 million to $167 million. However, the first half last year included $19 million of non recurring costs associated with exiting its international coal contract.

The Kupe contribution was likely to be $5 million lower at $50 million, due to lower oil sales from Kupe and the falling oil price.

Genesis had also had a strong run and was trading on elevated multiples. Investors were not getting good value for risk at the current share price, he said.

Mighty River Power

Tuesday, February 24

First half operating profit was expected to be down $12 million to $258 million following a difficult first half, with North Island hydro volumes worse this year than the dry period last year, Mr Young said.

A key driver was the increased operating expenditure. The energy margin was expected to be down $4 million due to difficult hydro conditions.

The normalised reported profit was forecast to be down 12% to $91.5 million, with a full six months of Ngatamariki operations affecting depreciation and net interest.

The forecast increased dividend reflected the company's free cash flow dividend policy.

 

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