Company Reports

Narrow-moat-rated Meridian Energy had a solid first half fiscal 2024, with EBITDA up 4% to NZD 443 million. The result was better than it appears, given dry weather reduced hydroelectric output and there were positive one-offs in the previous corresponding period. The key earnings tailwind of rising retail electricity prices remains in force. We downgrade our full-year EBITDA forecast by a modest 3% to NZD 826 million to factor in lower hydroelectric generation, but longer-term forecasts are largely unchanged.

Meridian Energy is a vertically integrated renewable energy company involved in the generation and retailing of electricity. Nearly 90% of its electricity is generated from low-cost hydro power plants, with wind making up the rest. While the significant hydro capacity is a source of competitive advantage and high returns for Meridian, it also increases the firm's risk during dry conditions when rainfall or snow melt is below average, resulting in substantially lower hydro production.

Narrow-moat Meridian Energy’s underlying earnings continue to grow strongly despite lower hydroelectric volumes. For fiscal 2024 year to date, we estimate EBITDA growth of close to 5% but growth would be in the midteens if it wasn’t for some abnormally large hedge gains in the previous corresponding period, or PCP. For the full fiscal year, we forecast EBITDA climbing 9% to NZD 852 million, with the key drivers being higher electricity prices for mass market and wholesale customers.

Narrow-moat Meridian Energy performed well in fiscal 2023 despite missing most of the rain that benefited North Island hydroelectric competitors. EBITDA increased 10% to NZD 783 million, in line with expectations, and underlying net profit after tax rose 35% to NZD 315 million, beating our forecast by 9% because of lower-than-expected interest expense. Strength was broad-based, with positives including higher customer sales volumes, higher generation volumes, and higher retail prices. Dividends increased 3% to NZD 17.90 cents per share, 80% imputed for New Zealand residents. We upgrade our medium-term EBITDA forecasts by 3% after increasing expectations for retail prices and increase our fair value estimate by 4% to NZD 4.80 per share. At current prices, Meridian is slightly overvalued, offering a forecast fiscal 2024 dividend yield of 3.8%.

Narrow-moat-rated Meridian Energy reported EBITDA of NZD 422 million, a good result but down 9% on the same period last year, which was a record. We maintain our NZD 3.90 per share fair value estimate and consider the stock significantly overvalued. A NZD 5.7 cent per share interim dividend was declared, flat on last year excluding last year's special dividend. We forecast full-year dividends total NZD 17.5 cps, a yield of just 3.1% on the current share price.

Meridian Energy is a vertically integrated renewable energy company involved in the generation and retailing of electricity. Nearly 90% of its electricity is generated from low-cost hydro power plants, with wind making up the rest. While the significant hydro capacity is a source of competitive advantage and high returns for Meridian, it also increases the firm's risk during dry conditions when rainfall or snow melt is below average, resulting in substantially lower hydro production.

Meridian Energy is a vertically integrated renewable energy company involved in the generation and retailing of electricity. Nearly 90% of its electricity is generated from low-cost hydro power plants, with wind making up the rest. While the significant hydro capacity is a source of competitive advantage and high returns for Meridian, it also increases the firm's risk during dry conditions when rainfall or snow melt is below average, resulting in substantially lower hydro production.

Meridian Energy's fiscal 2015 net profit increased 7% to NZD 247 million. The result exceeded our expectations, chiefly because of stronger demand growth in New Zealand, resilient retail pricing amid fierce competition, and a lower-than-expected tax expense. Free cash flow increased 6% to NZD 400 million. We expect free cash flow to continue to expand for the foreseeable future as growth capital expenditure slows. The board kicked off capital management with a final special dividend of NZD 0.04 per share. The rise in payout ratio from between 70% and 80% to between 75% and 90% of free cash flow fits with management's laudable endeavour to return NZD 625 million to shareholders by fiscal 2020.

Meridian Energy held an analyst briefing for investors recently. Management discussed various issues, the most notable ones being transmission pricing, retail strategy, future demand-supply dynamics and its long-term maintenance capital expenditure program. However, there were no real standouts or surprises from the meeting to change our outlook or thesis on the company. Consequently, we have left our forecasts and fair value estimate unchanged. Our narrow economic moat rating on the company also remains intact. Meridian's share price of NZD 2.45 appears slightly overvalued compared with our fair value estimate of NZD 2.20 per share as the market expects a higher earnings growth trajectory than what is implied by our projections. The share price is also implying a positive outcome from the transmission pricing review. That said, the stock is trading at a solid dividend yield of 7.7%, with management announcing generous capital returns of NZD 125 million per annum on average. We think that will continue to be stock price supportive.

Meridian Energy is a vertically integrated renewable energy company involved in the generation and retailing of electricity. Nearly 90% of its electricity is generated from low-cost hydro power plants, with wind making up the rest. While the significant hydro capacity is a source of competitive advantage and high returns for Meridian, it also increases the firm's risk during dry conditions when rainfall or snow melt is below average, resulting in substantially lower hydro production.

Meridian Energy reported 21% growth in underlying earnings before interest, tax, depreciation and amortisation or EBITDA. The performance of its core New Zealand electricity business was nearly consistent with the half-year operating statics provided last month. Growth mainly reflects higher generation revenue because of increased volumes and uplift in wholesale electricity prices in New Zealand. It also reflects increased earnings from Meridian’s Australian division post commissioning of the Mt. Mercer wind farm and a significant reduction in operating expenses.

Meridian Energy is a vertically integrated renewable energy company involved in the generation and retailing of electricity. Nearly 90% of its electricity is generated from low-cost hydro power plants, with wind making up the rest. While the significant hydro capacity is a source of competitive advantage and high returns for Meridian, it also increases the firm's risk during dry conditions when rainfall or snow melt is below average, resulting in substantially lower hydro production.

Meridian Energy's annual general meeting did not spring any surprises. The company is comfortable with consensus forecast for underlying earnings before interest, tax, depreciation and amortisation, or EBITDA, of NZD 607 million for fiscal 2015. However, actual results could vary dramatically from forecast considering Meridian's dependence on hydro and wind generation which are at the whims of the weather. We maintain our 2015 EBITDA projection of NZD 610 million predicated on normal hydrology and wind conditions.

Meridian Energy is a vertically integrated renewable energy company involved in the generation and retailing of electricity. Nearly 90% of its electricity is generated from low-cost hydro power plants, with wind making up the rest. While the significant hydro capacity is a source of competitive advantage and high returns for Meridian, it also increases the firm's risk during dry conditions when rainfall or snow melt is below average, resulting in substantially lower hydro production.

Meridian Energy's annual general meeting did not spring any surprises. The company is comfortable with consensus forecast for underlying earnings before interest, tax, depreciation and amortisation, or EBITDA, of NZD 607 million for fiscal 2015. However, actual results could vary dramatically from forecast considering Meridian's dependence on hydro and wind generation which are at the whims of the weather. We maintain our 2015 EBITDA projection of NZD 610 million predicated on normal hydrology and wind conditions.

Meridian Energy is a vertically integrated renewable energy company involved in the generation and retailing of electricity. Nearly 90% of its electricity is generated from low-cost hydro power plants, with wind making up the rest. While the significant hydro capacity is a source of competitive advantage and high returns for Meridian, it also increases the firm's risk during dry conditions when rainfall or snow melt is below average, resulting in substantially lower hydro production.

The decisive election victory for John Key's National Party government is a major positive for the New Zealand electricity companies, including Meridian Energy, as it removes the short-term risk of regulation. Despite the positive implications of the National Party's win, the near-term outlook for the electricity sector is weak. We expect retail margins to remain under pressure as a result of the entry of Trustpower into the metropolitan markets and oversupply is causing pricing pressure in both residential and commercial markets. We expect industry sales volumes to remain flat as demand is stifled by ongoing energy efficiency initiatives. Our fair value estimate is unchanged at NZD 1.16 for Meridian's instalment receipts, corresponding to a fair value of NZD 1.75 per share. Trading well above fair value, we view the instalment receipts as overvalued with the market not fully incorporating the weak outlook. We retain our narrow economic moat rating reflecting the efficient scale attributes and we expect Meridian to achieve returns higher than its cost of capital for the foreseeable future. Despite trading above fair value, Meridian's dividend yield remains attractive.

Meridian Energy is a vertically integrated renewable energy company involved in the generation and retailing of electricity. Nearly 90% of its electricity is generated from low-cost hydro power plants, with wind making up the rest. While the significant hydro capacity is a source of competitive advantage and high returns for Meridian, it also increases the firm's risk during dry conditions when rainfall or snow melt is below average, resulting in substantially lower hydro production.

Meridian Energy’s fiscal 2014 results were slightly ahead of our expectations. Underlying earnings before interest, tax, depreciation and amortisation, or EBITDA, at NZD 585 million was 2.5% ahead of our forecast primarily due to better margins in the New Zealand division, lower-than-anticipated transmission costs. and good control on overhead operating costs. Transmission cost increased by NZD 15 million over the prior period, and was the main reason for the flat results over the previous corresponding period. This reflects Transpower’s cost recovery from the construction of a new high frequency direct current, or HVDC, link connecting the North Island to the South Island with Meridian bearing a significant chunk of that cost, being a South Island generator. Price increases for retail customers remained subdued whilst the new contract with New Zealand Aluminum Smelters (Meridian’s largest customer) resulted in a 17% decline in commercial and industrial prices.

Meridian Energy is a vertically integrated renewable energy company involved in the generation and retailing of electricity. Nearly 90% of its electricity is generated from low-cost hydro power plants, with wind making up the rest. While the significant hydro capacity is a source of competitive advantage and high returns for Meridian, it also increases the firm's risk during dry conditions when rainfall or snow melt is below average, resulting in substantially lower hydro production.