Meridian Energy Limited
MEZ Details
Meridian Energy Limited (ASX: MEZ) is one of the leading renewable energy companies in New Zealand. It is mainly involved in the generation of electricity from 100% renewable sources – wind, water, and sun. MEZ owns hydropower stations and wind farms that generate electricity.
Result Performance (FY21 Ended 30 June 2021)
- Underlying net profit after tax for the full year period stood at $232 million, a decline of 27% on the previous year. However, with the benefit of $248 million of positive non-cash movements in the value of hedge instruments, NPAT stood at $428 Mn for the year ended 30 June 2021.
- EBITDAF for the period stood at $729 million, a decline of 15% on the previous year. This year the company maintained that strong retail sales growth with New Zealand volumes up 14% on the prior year. Challenging drought conditions prevailed through much of the second six months of the year and as a result New Zealand hydro generation was down 12% on the previous year.
- The Board of Directors declared a final ordinary dividend of 11.20 cents per share, unchanged from the previous year.
Source: Company Reports, Analysis by Kalkine Group
December Operating Performance:
- In the month to 11 January 2022, national hydro storage decreased from 128% to 115% of historical average
- South Island storage decreased to 112% of average and North Island storage increased to 131% of average by 11 January 2022
- Meridian’s December 2021 monthly total inflows were 113% of historical average
- Meridian’s Waitaki catchment water storage at the end of December 2021 was 132% of historical average
Recent Update:
On 26 January 2022, the company confirmed that the suspension of the 50MWh per hour Potline 4 contract between Meridian and New Zealand Aluminium Smelters Limited (NZAS) has been extended up to and including 31 May 2022.
Outlook:
As per the release dated 25th August 2021, the company is expecting FY 2022 group capex in the range of $205 Mn- $215 Mn. For FY22, the company expects its operating costs to be between NZ$275 million and NZ$280 million. The company will release its H1FY22 results on 23 February 2022.
Key Risks:
- Electricity Price Risk: The wholesale market price of electricity is affected by the dynamics of supply and demand. MEZ is exposed to the risks associated with fluctuations in the market prices of electricity as it could impact the company’s financial performance.
- Foreign Currency Risk: The company is exposed to the risks associated with the fluctuations in the exchange rates of New Zealand and Australian dollars.
Valuation Methodology: EV/EBITDA Based Relative Valuation (Illustrative)
Technical Overview:
Chart:
Source: REFINITIV
Note: Purple Color Line Reflects RSI (14-Period)
Stock Recommendation
The stock has been valued using EV/EBITDA based relative valuation (on an illustrative basis) and the target price so arrived reflects a rise of low double-digit (in % terms). A slight discount has been applied to EV/EBITDA Multiple (NTM) (Peer Average) considering the risks associated with the business. However, the company has posted better operating revenue in FY 2021 on the YoY basis.
Considering the aforementioned factors, we give a “Buy” recommendation on the stock at the current market price of $4.20 per share (Time: 3:28 PM (GMT +10), Sydney, Australia) as of 27th January 2022.
Note 1: The reference data in this report has been partly sourced from REFINITIV.
Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.
Technical Indicators Defined:-
Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.
Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.
Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices
Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.
Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.
There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.
You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.
The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.
Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.
Please also read our Terms & Conditions and Financial Services Guide for further information.
On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website unless those persons comply with certain safeguards, procedures, and disclosures.
Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.