Mighty River ahead of forecasts

Chris Timms
Chris Timms
The Government can breathe a sigh of relief after Mighty River Power yesterday reported financial results ahead of its prospectus forecasts, Craigs Investment Partners broker Chris Timms says.

With shares trading around 13% below listing price this week, Mighty River Power needed a ''good solid result'' to help lift its share price, he said.

Apart from receiving a cash dividend of $52.2 million from its 51% holding in Mighty River Power, the Government will be hoping its partial float of Meridian later this year will prove attractive to investors.

The energy company, listed on the sharemarket earlier this year, reported operating earnings, net profit, underlying earnings and operating cash flow above the forecasts included in the share offer investment statement and prospectus issued in April.

Operating earnings for the year ended June were $390.5 million, down 15.4% on the previous corresponding period but up 2.1% on forecast.

Reported profit for the year was $114.8 million, 68.5% ahead of the pcp and 21.1% ahead of forecast, and underlying after-tax earnings were $179.5 million, 10.3% ahead of last year and 12.7% ahead of the forecast.

Mighty River Power chief executive Doug Heffernan said the main differences from the previous year, as forecast in the prospectus, were lower hydro volumes due to the drought and one-off costs associated with taking director control of International Geothermal interests and the sharemarket listing.

The company's 5% growth in electricity sales to customers in the reported period showed the success from securing a 12% increase in commercial volumes ahead of the new Ngatamariki geothermal station coming online. There was a small drop in residential demand, consistent with the national picture, he said.

Mr Timms said the major profit contribution increase had come from the New Zealand side of the business. The final fully imputed dividend was 7.2c per share to take the full dividend to 12cps.

Forsyth Barr broker Peter Young said Mighty River Power had reaffirmed its 2014 financial year prospectus forecast.

''The start of the 2014 year has been challenging with continued low Waikato hydrology. However, the low wholesale electricity prices - due to plenty of water in the South Island - will be helping to protect Mighty River Power.''

The potential for lower operating costs should also be a boost for 2014 and beyond, he said.

Mighty River Power made a ''somewhat cryptic comment'' that could mean it was considering increasing the 2014 dividend from the planned 13cps.

Forsyth Barr continued to favour other stocks in the energy sector. Mighty River Power was trading at around $2.20 yesterday compared to Forsyth Barr's target price of $2.40. The current recommendation of hold was under review, Mr Young said.

Mighty River Power chairwoman Joan Withers said the 2013 financial year was an intense one for the company as it made the transition from a state-owned enterprise to a listed company, grew its market share by adding value for customers and reporting operating performance and financial results above forecasts.

The key measure of operating performance, energy margin, held up despite the drought - highlighting the company's ability to perform close to plan under low hydro inflows. That was a key competitive strength for Mighty River Power in the New Zealand market, she said.

''Our results highlight a distinctive competitive advantage for Mighty River Power due to the fact that even large reductions in Waikato hydro generation volumes are small relative to overall national supply, with little influence on national wholesale electricity pricing.

''This means that even though hydro volumes in the Waikato were well below average, more than 30% of our annual production is reliable geothermal generation and we could buy cheaply from the market to cover our sales portfolio.''

The company planned to issue updated earnings guidance at the annual shareholders meeting on November 7, Mrs Withers said.

 

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