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.

Equity Bottom-Up

<ul><li>Mercury's (MCY) 3Q24 operating metrics are best described as steady, with the benefits of its new wind farms evident as they offset softer (but still above average) hydro generation.</li><li>Pricing across all product categories remains strong and our upwards forecast movements is due to a combination of a higher forward wholesale electricity price, and gas and telco prices rising faster than expected.</li><li>We raise our target price +15cps (+2.9%) to NZ$5.35, but retain our UNDERPERFORM rating as MCY remains expensive. </li></ul>

Mercury's (MCY) 3Q24 operating metrics are best described as steady, with the benefits of its new wind farms evident as they offset softer (but still above average) hydro generation.Pricing across all product categories remains strong and our upwards forecast movements is due to a combination of a higher forward wholesale electricity price, and gas and telco prices rising faster than expected.We raise our target price +15cps (+2.9%) to NZ$5.35, but retain our UNDERPERFORM rating as MCY remains expensive. 

Mercury - 3Q24 Op Stats — Favourable Tailwinds External Inbox Updates

Thematic (Sector/Industry)

<div><div><div><div><ul><li>March 2024 was a good month for Manawa Energy (MNW), electricity demand, and solar developers. It wasn’t such a good month for EV dealers.</li><li>MNW was the strongest performing electricity stock in March 2024 following its guidance upgrade.</li><li>Strong electricity demand growth continues and now appears to be a trend which is positive for medium-term pricing, although continued big falls in solar panel prices will help offset some of those pricing effects. </li></ul></div></div></div></div>

March 2024 was a good month for Manawa Energy (MNW), electricity demand, and solar developers. It wasn’t such a good month for EV dealers.MNW was the strongest performing electricity stock in March 2024 following its guidance upgrade.Strong electricity demand growth continues and now appears to be a trend which is positive for medium-term pricing, although continued big falls in solar panel prices will help offset some of those pricing effects. 

Power Points - Demand Is Trending Upwards — April 2024

<div><div><div><div><ul><li>Quarterly reports released in February 2024 from the wind turbine manufacturers suggest prices are starting to ease, which would be welcome news for wind developers.</li><li>1H24 results reported by the big four generator/retailers contained few surprises but did highlight ongoing opex and consenting challenges, with opex generally negatively surprising and delays to several projects.</li><li>Generator/retailer share prices generally remain elevated, in particular Mercury (MCY) which is trading just short of record highs. </li></ul></div></div></div></div>

Quarterly reports released in February 2024 from the wind turbine manufacturers suggest prices are starting to ease, which would be welcome news for wind developers.1H24 results reported by the big four generator/retailers contained few surprises but did highlight ongoing opex and consenting challenges, with opex generally negatively surprising and delays to several projects.Generator/retailer share prices generally remain elevated, in particular Mercury (MCY) which is trading just short of record highs. 

Power Points -  Wind Regaining Its Puff? — March 2024

<ul><li>Appearances can be deceptive. Mercury (MCY) reported a strong 1H24 EBITDAF result of NZ$434m, albeit at first glance it appears soft vs. 1H23 and our expectations.</li><li>In addition, the FY24 guidance upgrade appears very strong, but rising opex is masked by gains that cannot be banked on to repeat in future years.</li><li>Whilst we lift our FY24 EBITDAF forecast +5.3%, as FY24 is tracking ahead of expectations, we lower our target price -8cps (-1.5%) on higher long-term opex and stay-in-business capex assumptions. </li></ul>

Appearances can be deceptive. Mercury (MCY) reported a strong 1H24 EBITDAF result of NZ$434m, albeit at first glance it appears soft vs. 1H23 and our expectations.In addition, the FY24 guidance upgrade appears very strong, but rising opex is masked by gains that cannot be banked on to repeat in future years.Whilst we lift our FY24 EBITDAF forecast +5.3%, as FY24 is tracking ahead of expectations, we lower our target price -8cps (-1.5%) on higher long-term opex and stay-in-business capex assumptions. 

Mercury - Trading Comes With a Cost — 1H24 Result

<ul><li>For the first time in three years we are moving our WACC assumptions down.</li><li>This is driven by a modestly lower (-25 bps) interpolated 10-year interest rate assumption; our proxy for the risk free rate.</li><li>We also incorporate our C&amp;ESG ratings into our WACC assumptions. We do this on an overall neutral basis, with a scale of -25 bps to +25 bps added to the cost of equity. </li></ul>

For the first time in three years we are moving our WACC assumptions down.This is driven by a modestly lower (-25 bps) interpolated 10-year interest rate assumption; our proxy for the risk free rate.We also incorporate our C&amp;ESG ratings into our WACC assumptions. We do this on an overall neutral basis, with a scale of -25 bps to +25 bps added to the cost of equity. 

Equity Strategy - WACC Review; a Lower Rfr and Adding C&ESG

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)

Mercury - 3Q24 Op Stats — Favourable Tailwinds External Inbox Updates

Mercury's (MCY) 3Q24 operating metrics are best described as steady, with the benefits of its new wind farms evident as they offset softer (but...

Forsyth Barr

Power Points - Wind Regaining Its Puff? — March 2024

Quarterly reports released in February 2024 from the wind turbine manufacturers suggest prices are starting to ease, which would be welcome news...

Forsyth Barr

Mercury - Trading Comes With a Cost — 1H24 Result

Appearances can be deceptive. Mercury (MCY) reported a strong 1H24 EBITDAF result of NZ$434m, albeit at first glance it appears soft vs. 1H23 and...

Forsyth Barr

Equity Strategy - WACC Review; a Lower Rfr and Adding C&ESG

For the first time in three years we are moving our WACC assumptions down. This is driven by a modestly lower (-25 bps) interpolated 10-year...

Forsyth Barr

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