This report is an updated version of the report published on 5th May 2022 at 4:10 PM (GMT +10)
Meridian Energy Limited
MEZ Details
Meridian Energy Limited (ASX: MEZ) is engaged in the business of generating 100% renewable energy from renewable sources - wind, water, and sun. It supplies electricity to its customers comes from the electricity grid which combines electricity supplied from both renewable and non-renewable sources.
H1FY22 Results Performance (For the Half Year Ended 31 December 2021)
- MEZ has delivered a net profit after tax of $145 million from continuing operations, down by $82 million (36%) than the same period last year, primarily due to negative changes in the value of hedge instruments.
- Excluding these hedge value movements, EBITDAF reduced by $1 million and the underlying net profit after tax decreased by $5 million.
- The board has declared an interim ordinary dividend of 5.85 cents per share.
- The company completed the sale of MEA on 31 January 2022, and it expects to recognise a gain on the sale in the order of $240 million in its full-year accounts for 2022.
Source: Analysis by Kalkine Group
Recent Update
- On 28 April 2022, Transpower provided an indicative transmission pricing update, wherein Transpower’s indicative numbers revealed a $26 million per annum cost saving for Meridian from the current TPM, against the indicative pricing released last year that showed a $13 million per annum cost saving.
- On 6 April 2022, the company has given notice to New Zealand Aluminium Smelters Limited (NZAS) wherein it stated that it has nominated several trading periods as Meridian Price Separation Periods in accordance with the terms of the electricity agreement between Meridian and NZAS.
Operating Performance for The Month of March 2022
National hydro storage reduced from 102% to 81% of the historical average in the month to 12 April 2022. The company’s monthly total inflows stood at 38% of the historical average, the lowest March month inflows on record. Its Waitaki catchment water storage at the end of March 2022 stood at 92% of the historical average, while the water storage in Meridian’s Waiau catchment remained 24% of average at the end of March 2022. The company’s retail sales volumes in New Zealand in March 2022 increased by 5.9% from March 2021.
Key Risks
The company is exposed to risks related to adverse hydrological conditions such as dry periods or drought conditions in the Waitaki or the Waiau catchments. Further, it is susceptible to catastrophic events like a major earthquake, landslide, fire, flood, cyclone, explosion, or act of terrorism that could adversely affect its power stations or the national high voltage transmission grid.
Outlook
The company has started bulk earthworks at its Harapaki wind farm development in Hawke’s Bay and has been vigorously working to increase its renewable development pipeline, which includes the development of Ruākākā Energy Park. It has identified four potential partners for the next phase of the Southern Green Hydrogen project and is assessing proposals from each of the four counterparties to develop the production and export facility in Southland. Besides, the company’s balance sheet remains in a strong position, with the company maintaining a BBB+ credit rating.
Valuation Methodology: EV/EBITDA Multiple 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 an EV/EBITDA multiple-based illustrative relative valuation and the target price so arrived reflects a rise of low-double-digit (in % terms). A slight premium has been applied to EV/EBITDA Multiple (NTM) (Peer Average) considering its higher New Zealand customer numbers and retail sales volumes in Q3FY22.
Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.
Considering the aforementioned factors, we give a “Buy” recommendation on the stock at the current market price of $4.29 per share (Time: 10:26 AM, Sydney, Australia (GMT +10)) on 5th May 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
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