The basis for the upgrade was extra hydro generation.
Mercury is now expected to generate 4700GWh from its Waikato River power stations, up 200GWh from earlier guidance and 700GWh (17%) above average.
Forsyth Barr had upgraded Mercury’s 2017 financial year profit forecast by $8million to $519million and assumed 4670GWh of generation, he said.
"While Mercury is having a great year, we continue to believe Mercury is the most expensive of the generators/retailers and retain our under-perform rating."
Forsyth Barr had a share target price of $2.97. The shares last traded at $3.20, up 1c.
Mercury had 390,000 electricity customers at the end of March, up from 377,000 a year earlier. Its annualised churn rate of 17.6% was the lowest among the major retailers and below the market average of 20.5%.
Mr Foster said dry South Island conditions were aiding Mercury. Wholesale electricity prices were firming and Mercury would have a strong finish to the year.
Looking at the energy sector as a whole, Mr Foster said divergent operating conditions in the North and South Island continued in May. Hydro operators in the north — Mercury, Genesis Energy and Trustpower — were benefiting from the wet conditions, while their counterparts in the south — Contact Energy and Meridian Energy — received little rain.
Colder weather across the country meant a spike in demand, up nearly 8% on the previous corresponding period and the highest single-month growth rate seen, he said.
North Island hydro generation of 847GWh was the highest monthly total since August 2008 and South Island hydro generation was the lowest for two years.
"The largest four generator/retailers are heading into their financial year ends and are experiencing different finishes to the period as a result of the hydrology conditions."
Forsyth Barr had also upgraded its operating profit forecast for Genesis by $5million but downgraded Meridian by $6million and Contact by $8million, he said.
With the exception of Lake Taupo, all key storage lakes were below average and national storage was 76% of average.
Monthly average wholesale electricity prices at both the Benmore and Otahuhu nodes surged during May to $66.20MWh and $64.80MWh respectively, pushing past the pcp for the first time this year.
Benmore had not had higher prices than Otahuhu since April 2015, illustrating the different conditions in the islands, Mr Foster said.
May 2017 was the coolest May since 2012, down 13.8%, or 2.6degC, below the pcp, and followed the warmest May in 2016.
Not surprisingly, a spike in demand coincided with the colder temperatures and demand was up nearly 8% in May, 8.2% excluding New Zealand Aluminium Smelters’ demand.
Steel & Tube chief executive Dave Taylor admitted in March last year the use of Holmes’ logo was an "oversight" and "mistake" and that he had apologised to Holmes, but otherwise had "full confidence" the mesh was "in full compliance with appropriate standards".
A Commerce Commission spokeswoman told the ODT last year that a company making misleading representations, such as claiming a product was tested by a company that had not tested it, was prohibited under the Fair Trading Act in New Zealand.
Steel & Tube had been cooperating with the commission throughout the investigation and was working with the regulator to reach a resolution of the charges, the Lower Hutt-based company said in its statement to the stock exchange.
The regulator started its investigation in August 2015 after a complaint was laid about the steel mesh not meeting the standards required in New Zealand. The commission signed enforceable undertakings in late April 2016 with Steel & Tube that the company would only sell SE62 500E grade steel mesh that passed specific independent testing. The undertakings were also imposed on other companies.
The commission said yesterday that the charges allege Steel & Tube made misleading representations on their batch tags, batch test certificates, advertising collateral and website that SE62 was 500E grade steel, when it was not, BusinessDesk reported. The charges also allege that false and misleading representations were made by Steel & Tube that SE62 steel mesh had been independently tested and certified, when it had not. This included using the logo of an independent testing laboratory on SE62 test certificates when the product had not been tested by the laboratory.
Steel & Tube had admitted selling "many thousands of sheets" of earthquake reinforcing mesh incorrectly labelled as being independently certified after it used Holmes Solutions logo on its steel mesh for four years, despite it not having carried out the tests.
— Additional reporting BusinessDesk
Generation update
• Contact: Thermal generation runs hot, South Island hydro runs cold (neutral rating)
• Genesis: Highest North Island hydro generation since July 2011 (neutral)
• Mercury: Enjoying record hydro generation (underperform)
• Meridian: Both wind and hydro generation were below average (neutral)
• Tilt: another weak month for wind (outperform)
• Trustpower: North Island hydro generation was the highest recorded for at least 10 years. South Island hydro was down on average, but not materially so (neutral)
