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)

<ul><li>We upgrade Mercury (MCY) to OUTPERFORM from NEUTRAL, as it is offering good value relative to Meridian Energy (MEL) in particular, and we expect near-term FY25 EBITDAF earnings will be better than guidance following recent rain.</li><li>Since 2018 MEL has always traded at a premium to its peers, but is currently trading at a near record premium using our preferred EV/EBITDAF less stay-in-business (SIB) capex metric.</li><li>Looking at the three largest generator/retailers, MEL's equity value is greater than Contact Energy (CEN) and MCY combined, and yet CEN and MCY's combined businesses generate over 30% more electricity and earnings than MEL. </li></ul>

We upgrade Mercury (MCY) to OUTPERFORM from NEUTRAL, as it is offering good value relative to Meridian Energy (MEL) in particular, and we expect near-term FY25 EBITDAF earnings will be better than guidance following recent rain.Since 2018 MEL has always traded at a premium to its peers, but is currently trading at a near record premium using our preferred EV/EBITDAF less stay-in-business (SIB) capex metric.Looking at the three largest generator/retailers, MEL's equity value is greater than Contact Energy (CEN) and MCY combined, and yet CEN and MCY's combined businesses generate over 30% more electricity and earnings than MEL. 

Electricity Sector - MCY Shining Brighter Than MEL

<ul><li>August 2024 was one of the more eventful months for the electricity sector.</li><li>The sector was jolted into action by record high wholesale electricity prices at the beginning of the month, with electric shock treatment setting up the conditions to reverse those prices by month end.</li><li>August 2024 was also reporting season. Whilst the results were in line with expectations, the FY25 outlook for most of the companies was tempered by low hydro generation. </li></ul>

August 2024 was one of the more eventful months for the electricity sector.The sector was jolted into action by record high wholesale electricity prices at the beginning of the month, with electric shock treatment setting up the conditions to reverse those prices by month end.August 2024 was also reporting season. Whilst the results were in line with expectations, the FY25 outlook for most of the companies was tempered by low hydro generation. 

Power Points - Electric Shock Treatment Worked — Sept 2024

Equity Bottom-Up

<ul><li>Disappointing FY25 guidance, relative to market expectations, dominated Mercury’s FY24 result.</li><li>MCY is being exposed to tail risks not seen in the market since 2008, with the extreme market conditions impacting MCY’s 1Q25 performance.</li><li>The cost of replacing hydro generation is higher than ever before, and that is the driver of the EBITDAF and dividend misses. </li></ul>

Disappointing FY25 guidance, relative to market expectations, dominated Mercury’s FY24 result.MCY is being exposed to tail risks not seen in the market since 2008, with the extreme market conditions impacting MCY’s 1Q25 performance.The cost of replacing hydro generation is higher than ever before, and that is the driver of the EBITDAF and dividend misses. 

Mercury - Holding on to a Taniwha Tail — FY24 Result

<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

New Zealand

Mercury NZ Ltd provides utility services. The Company generates and supplies electricity from hydro, geothermal, gas-fired, and wind power stations, as well as owns and manages bio-energy power plants. Mighty River Power serves customers throughout New Zealand.

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Mercury NZ Ltd (MCY NZ)

Electricity Sector - MCY Shining Brighter Than MEL

MCY joins CEN and Manawa Energy (MNW) as our preferred electricity sector stocks with OUTPERFORM ratings. Genesis Energy (GNE) and MEL are rated...

Forsyth Barr

Power Points - Electric Shock Treatment Worked — Sept 2024

August 2024 was also reporting season. Whilst the results were in line with expectations, the FY25 outlook for most of the companies was tempered...

Forsyth Barr

Mercury - Holding on to a Taniwha Tail — FY24 Result

MCY is being exposed to tail risks not seen in the market since 2008, with the extreme market conditions impacting MCY’s 1Q25 performance.

Forsyth Barr

Electricity Sector - Weathering the Drought — Outlook Update

Thermal generators, CEN and GNE get a modest increase, but we have trimmed our Mercury (MCY) and Meridian Energy (MEL) forecasts.

Forsyth Barr

Power Points - Lakes Dry, Prices High — August 2024

July 2024 broke several records and since month end, spot wholesale electricity prices and ASX futures prices have gone to a whole new level.

Forsyth Barr

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