New Zealand Professional Investment Services Firm

Forsyth Barr

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.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Power Points<br>Interest Rate and Hydro Squeeze&nbsp;— April 2022</h2>
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<h3>Rising interest rates squeeze dividend spreads to record lows, March movements indicate sector 10% expensive</h3>
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<p>The sector shrugged off the +38bp increase in the 10-year swap rate, making it even more expensive than it was. In particular, MCY, MEL &amp; TPW are now trading on record low gross dividend yield spreads, just +1.1% to +1.3% more than the 10-year swap rate and +0.4% to +0.8% more than the yield on their respective corporate bonds. In our view, there is nothing in the company fundamentals&nbsp;to justify the collapse in spreads. All things held constant, the share prices are on average +10% expensive relative to 28 Feb&nbsp;2022.</p>
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<h3>March 2022 notable for falling hydro storage, soft electricity demand and CEN running TCC</h3>
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<p>Average hydro storage fell from 109% of average at the beginning of March 2022 to 89% by month end. MEL’s&nbsp;Manapouri&nbsp;system in particular is struggling and is at its lowest level on record, just 27% of average. Wholesale electricity prices firmed, with the&nbsp;Otahuhu&nbsp;(OTA) price rising +28% to NZ$204/MWh. Lower hydro lake levels saw increased thermal generation with CEN running TCC unusually early in the year. March 2022 electricity demand was down -1.5% on&nbsp;2021, the ninth month out of the last 10 with negative electricity demand. ASX futures prices continue to rise, with the OTA long-dated price up +9% to NZ$157/MWh, a&nbsp;month-end record.</p>
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<h3>More solar developments announced and even offshore wind mooted</h3>
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<p>March 2022 saw another ~80MW of solar developments announced, with solar proposals/targets closing in on 2GW. We took an in depth look at the New Zealand solar market in our report, House of the Rising Sun, published 29 March, with a notable feature being the level of independent solar developers entering the market. Added to the list of potential independent developers is NZ Super and Copenhagen Infrastructure Partners who are together looking at the feasibility of offshore wind. Whilst New Zealand's offshore wind potential is good, New Zealand also has plenty of onshore wind potential which costs ~-50% less than offshore wind. We expect onshore wind, solar and geothermal will all get built before offshore wind is needed.</p>
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Power Points Interest Rate and Hydro Squeeze&nbsp;— April 2022


Rising interest rates squeeze dividend spreads to record lows, March movements indicate sector 10% expensive


The sector shrugged off the +38bp increase in the 10-year swap rate, making it even more expensive than it was. In particular, MCY, MEL &amp; TPW are now trading on record low gross dividend yield spreads, just +1.1% to +1.3% more than the 10-year swap rate and +0.4% to +0.8% more than the yield on their respective corporate bonds. In our view, there is nothing in the company fundamentals&nbsp;to justify the collapse in spreads. All things held constant, the share prices are on average +10% expensive relative to 28 Feb&nbsp;2022.



March 2022 notable for falling hydro storage, soft electricity demand and CEN running TCC


Average hydro storage fell from 109% of average at the beginning of March 2022 to 89% by month end. MEL’s&nbsp;Manapouri&nbsp;system in particular is struggling and is at its lowest level on record, just 27% of average. Wholesale electricity prices firmed, with the&nbsp;Otahuhu&nbsp;(OTA) price rising +28% to NZ$204/MWh. Lower hydro lake levels saw increased thermal generation with CEN running TCC unusually early in the year. March 2022 electricity demand was down -1.5% on&nbsp;2021, the ninth month out of the last 10 with negative electricity demand. ASX futures prices continue to rise, with the OTA long-dated price up +9% to NZ$157/MWh, a&nbsp;month-end record.


More solar developments announced and even offshore wind mooted


March 2022 saw another ~80MW of solar developments announced, with solar proposals/targets closing in on 2GW. We took an in depth look at the New Zealand solar market in our report, House of the Rising Sun, published 29 March, with a notable feature being the level of independent solar developers entering the market. Added to the list of potential independent developers is NZ Super and Copenhagen Infrastructure Partners who are together looking at the feasibility of offshore wind. Whilst New Zealand's offshore wind potential is good, New Zealand also has plenty of onshore wind potential which costs ~-50% less than offshore wind. We expect onshore wind, solar and geothermal will all get built before offshore wind is needed.


Power Points: Interest Rate and Hydro Squeeze — April 2022

Meridian Energy

Power Points: Interest Rate and Hydro Squeeze — April 2022