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>Genesis Energy<br>Steady Start to FY22 — 1Q22 Operating Stats</h2>
<div></div>
<p><strong>OUTPERFORM</strong></p>
<p>Genesis Energy (GNE) has had a steady start to FY22 with the retail performance the key positive feature of 1Q22 and&nbsp;netbacks&nbsp;across all three of&nbsp;GNE's&nbsp;products increasing. Whilst 1Q22 thermal generation fell due to increased hydro generation, July 2022 was a strong month and increased hydro generation reduces the cost of generation. Our forecasts are effectively unchanged. We have lowered our target price -15cps (-4.2%) to NZ$3.40 in light of increasing interest rate pressures. Nevertheless, GNE remains our preferred electricity stock as we believe it offers the best value in the sector, aided by its sector leading dividend yield. OUTPERFORM.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/236/546/original/image_97196764821634777879859.png?1634777883" class="editor-image img-responsive" data-smartkarma-image-id="236546"></figure>
<div>
<h3>What's changed?&nbsp;</h3>
</div>
<div id="m_-8826005312777172455iwrmo3">
<ul>
<li><strong>Target price</strong>:&nbsp;​​​​​​​Reduced -15cps (-4.2%) to NZ$3.40</li>
</ul>
</div>
<div>
<h3>Retail performance still strong, thermal generation volumes fall away due to strong hydro generation elsewhere</h3>
</div>
<div id="m_-8826005312777172455iaq4i">
<p>GNE's&nbsp;1Q22 operating performance was solid. The key feature was&nbsp;continued positive retail performance. Whilst retail sales volumes were generally down (electricity -6%, gas -11%,&nbsp; LPG +2%), margins continue to improve with the&nbsp;netbacks&nbsp;for all products lifting (electricity +4%, gas +10%, LPG +6%). Electricity and gas volumes were impacted by&nbsp;COVID-19 and a warm winter, but also declining connection numbers. Increased rainfall, particularly in the South Island, reduced the need to run thermal generation, resulting in 2Q22 coal generation falling -40% on 1Q21 and -72% on 4Q21.&nbsp;GNE's&nbsp;2Q22 hydro generation increased +36% on 4Q21. Overall 1Q22 was steady and&nbsp;in line with expectations. Our forecasts are largely unchanged.</p>
</div>
<div>
<h3>Kupe&nbsp;returns to full capacity, but development well likely to be drilled a year earlier than expected</h3>
</div>
<div id="m_-8826005312777172455ix59m">
<p>The&nbsp;Kupe&nbsp;compression project has been completed, enabling production to return to 77TJ/day after a period of declining production. However,&nbsp;Kupe&nbsp;joint venture partner, Beach Energy, has indicated a development well will be required in FY23, a year earlier than expected. Without it, production is again expected&nbsp;to decline after 2023. We estimate&nbsp;GNE's&nbsp;share of the development well will be ~NZ$50m. Whilst rising oil prices are positive, oil only contributed 15% of FY21 revenue, so is not material.</p>
</div>
<div>
<h3>GNE takes next steps in replacing thermal generation with solar memorandums of understanding</h3>
</div>
<div id="m_-8826005312777172455i3xkk">
<p>GNE announced that it has signed two memorandums of understanding with offshore solar developers. The next step is to lock in the developments. GNE has previously announced it is targeting 500MW of solar generation by 2025 and that it will be investing equity in the solar ventures, which is a different approach to the three&nbsp;offtake&nbsp;agreements it has signed thus far. In our view,&nbsp;GNE's&nbsp;Future-gen strategy is sound as it improves its ESG characteristics by replacing thermal generation which will decline significantly in coming years as more renewable generation comes on stream. It is better to eat your own lunch than let someone else do it for you.</p>
</div>

Genesis Energy Steady Start to FY22 — 1Q22 Operating Stats

OUTPERFORM
Genesis Energy (GNE) has had a steady start to FY22 with the retail performance the key positive feature of 1Q22 and&nbsp;netbacks&nbsp;across all three of&nbsp;GNE's&nbsp;products increasing. Whilst 1Q22 thermal generation fell due to increased hydro generation, July 2022 was a strong month and increased hydro generation reduces the cost of generation. Our forecasts are effectively unchanged. We have lowered our target price -15cps (-4.2%) to NZ$3.40 in light of increasing interest rate pressures. Nevertheless, GNE remains our preferred electricity stock as we believe it offers the best value in the sector, aided by its sector leading dividend yield. OUTPERFORM.


What's changed?&nbsp;



Target price:&nbsp;​​​​​​​Reduced -15cps (-4.2%) to NZ$3.40



Retail performance still strong, thermal generation volumes fall away due to strong hydro generation elsewhere


GNE's&nbsp;1Q22 operating performance was solid. The key feature was&nbsp;continued positive retail performance. Whilst retail sales volumes were generally down (electricity -6%, gas -11%,&nbsp; LPG +2%), margins continue to improve with the&nbsp;netbacks&nbsp;for all products lifting (electricity +4%, gas +10%, LPG +6%). Electricity and gas volumes were impacted by&nbsp;COVID-19 and a warm winter, but also declining connection numbers. Increased rainfall, particularly in the South Island, reduced the need to run thermal generation, resulting in 2Q22 coal generation falling -40% on 1Q21 and -72% on 4Q21.&nbsp;GNE's&nbsp;2Q22 hydro generation increased +36% on 4Q21. Overall 1Q22 was steady and&nbsp;in line with expectations. Our forecasts are largely unchanged.


Kupe&nbsp;returns to full capacity, but development well likely to be drilled a year earlier than expected


The&nbsp;Kupe&nbsp;compression project has been completed, enabling production to return to 77TJ/day after a period of declining production. However,&nbsp;Kupe&nbsp;joint venture partner, Beach Energy, has indicated a development well will be required in FY23, a year earlier than expected. Without it, production is again expected&nbsp;to decline after 2023. We estimate&nbsp;GNE's&nbsp;share of the development well will be ~NZ$50m. Whilst rising oil prices are positive, oil only contributed 15% of FY21 revenue, so is not material.


GNE takes next steps in replacing thermal generation with solar memorandums of understanding


GNE announced that it has signed two memorandums of understanding with offshore solar developers. The next step is to lock in the developments. GNE has previously announced it is targeting 500MW of solar generation by 2025 and that it will be investing equity in the solar ventures, which is a different approach to the three&nbsp;offtake&nbsp;agreements it has signed thus far. In our view,&nbsp;GNE's&nbsp;Future-gen strategy is sound as it improves its ESG characteristics by replacing thermal generation which will decline significantly in coming years as more renewable generation comes on stream. It is better to eat your own lunch than let someone else do it for you.


ジェネシス・エナジー：2022年度第1四半期の営業統計は順調なスタート