Manawa Energy: Healthy Outlook Despite Weak Share Price

Narrow-moat-rated Manawa Energy’s MNW share price is down more than 20% in the past year, a significant underperformance compared with other electricity “gentailers” in New Zealand. The shares are currently trading at a 30% discount to our NZD 6.30 fair value estimate. We believe the company continues to have a positive medium-term outlook due to rising electricity prices and generation volumes, as the firm upgrades its hydroelectric schemes. Over the longer term, Manawa has a significant wind and solar farm development pipeline to help meet the growing demand for renewable electricity, as New Zealand further decarbonizes.

Heavy rainfall led to strong generation volumes in the first quarter of fiscal 2024. With Manawa’s lake storage at 133% of average at the end of June, we expect a continued good performance in the second quarter despite drier conditions. Spot electricity prices weakened this year as nationwide hydroelectric schemes were inundated with water. But with national lake storage falling from 143% of the average in June to 83% in September, we think prices are likely to be well-supported in the future as high fuel and carbon costs push up operating costs for thermal power stations. Futures prices average NZD 160 per megawatt hour in the North Island and NZD 127 per MWh in the South Island through to the end of 2026. These are attractive prices that should keep Manawa’s average sales price ticking higher. Manawa’s exposure to wholesale prices increases as contracted sales volumes reduce over the medium term.

Manawa is investing NZD 200 million to upgrade its generation fleet to increase output and reliability. It is on track to deliver an extra 80 gigawatt hours of electricity per year, an uplift of about 4% in an average year, by fiscal 2028. It was about a third of the way to achieving the target at the end of last fiscal year.