New Zealand Professional Investment Services Firm, Forsyth Barr

Forsyth Barr

New Zealand Professional Investment Services Firm

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

Thematic (Sector/Industry)

<div><div><ul><li>It has been a tough week in the electricity sector, but we have been encouraged by the swift response, with Methanex redirecting its gas supplies to Contact Energy (CEN) and Genesis Energy (GNE) the most significant example.</li><li>With the big changes in wholesale electricity prices, the continued falls in hydro storage (now at 44% of average nationally), and the likes of the Methanex gas deal, we have revised our near-term forecasts.</li><li>Thermal generators, CEN and GNE get a modest increase, but we have trimmed our Mercury (MCY) and Meridian Energy (MEL) forecasts. </li></ul></div></div>

It has been a tough week in the electricity sector, but we have been encouraged by the swift response, with Methanex redirecting its gas supplies to Contact Energy (CEN) and Genesis Energy (GNE) the most significant example.With the big changes in wholesale electricity prices, the continued falls in hydro storage (now at 44% of average nationally), and the likes of the Methanex gas deal, we have revised our near-term forecasts.Thermal generators, CEN and GNE get a modest increase, but we have trimmed our Mercury (MCY) and Meridian Energy (MEL) forecasts. 

Electricity Sector - Weathering the Drought — Outlook Update

<div><ul><li>July 2024 broke several records and since month end, spot wholesale electricity prices and ASX futures prices have gone to a whole new level.</li><li>Hydro and snow storage at record lows and gas constraints are the main drivers of the record high prices.</li><li>We see downside risk to FY25 sector earnings with below average hydro generation and the rising cost of alternative generation the main negative impact. </li></ul></div>

July 2024 broke several records and since month end, spot wholesale electricity prices and ASX futures prices have gone to a whole new level.Hydro and snow storage at record lows and gas constraints are the main drivers of the record high prices.We see downside risk to FY25 sector earnings with below average hydro generation and the rising cost of alternative generation the main negative impact. 

Power Points - Lakes Dry, Prices High — August 2024

<ul><li>We are expecting solid FY24 EBITDAF earnings growth of +7% across the four generator/retailers reporting in August 2024.</li><li>However, given challenging operating conditions due to hydro and gas fuel shortages we see downside risk to FY25 guidance and outlook commentary.</li><li>How each company is managing the hydro and gas fuel shortfall is of particular interest. </li></ul>

We are expecting solid FY24 EBITDAF earnings growth of +7% across the four generator/retailers reporting in August 2024.However, given challenging operating conditions due to hydro and gas fuel shortages we see downside risk to FY25 guidance and outlook commentary.How each company is managing the hydro and gas fuel shortfall is of particular interest. 

Electricity Sector - Dry July Pressures FY25 - FY24 Result Preview

Equity Bottom-Up

<ul><li>Contact Energy (CEN) has had a steady end to FY24, with Tauhara commissioning volumes helping to offset below average hydro generation.</li><li>We calculate FY24 EBITDAF was NZ$662m (after market–making losses), up +NZ$116m on FY23.</li><li>With hydro conditions continuing to be challenging, short-term earnings risk is to the downside, but rising ASX futures prices will help lift medium-term earnings.</li></ul>

Contact Energy (CEN) has had a steady end to FY24, with Tauhara commissioning volumes helping to offset below average hydro generation.We calculate FY24 EBITDAF was NZ$662m (after market–making losses), up +NZ$116m on FY23.With hydro conditions continuing to be challenging, short-term earnings risk is to the downside, but rising ASX futures prices will help lift medium-term earnings.

Contact Energy - Steady End to FY24 - June '24 Operating Stats

<ul><li>Contact Energy's (CEN) first-time FY25 EBITDAF guidance and dividend guidance was a big disappointment.</li><li>In essence, CEN is short generation and needs to cover its position in a market with elevated wholesale electricity prices.</li><li>The modest-to-flat dividend outlook means investors will have to wait, possibly another three years, before there is meaningful dividend growth. </li></ul>

Contact Energy's (CEN) first-time FY25 EBITDAF guidance and dividend guidance was a big disappointment.In essence, CEN is short generation and needs to cover its position in a market with elevated wholesale electricity prices.The modest-to-flat dividend outlook means investors will have to wait, possibly another three years, before there is meaningful dividend growth. 

Contact Energy - Caught Short — Expectations Revised Lower

New Zealand

Contact Energy Limited is a diversified and integrated energy company which focuses on the generation of electricity and the sale of electricity and gas in New Zealand.

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