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.
FY21 Results Performance (For the Year Ended 30 June 2021)
- MEZ has delivered an EBITDAF of $729 million in FY21, down by $124 million or 15% over FY20. However, the company’s net profit after tax rose to $428 million in FY21 owing to the advantage of $248 million of positive non-cash movements in the value of hedge instruments.
- MEZ has sustained the robust retail sales growth in FY21 and New Zealand volumes grew by 14% over the prior year.
- The board has approved a final ordinary dividend of 11.20 cents per share that stayed in line with the previous year. This takes the total ordinary dividends for FY21 to 16.90 cents per share compared to the same level in FY20.
Source: Company Reports, Analysis by Kalkine Group
Recent Update
- In the press release dated 30 November 2021, the company announced the completion of the share buyback and has acquired 418,384 ordinary shares on the NZX Main Board at an average price of NZ$4.6067 per share.
- On 29 November 2021, the company has appointed its current Chief People Officer, Tania Palmer for the role of General Manager Generation, effective 6 December 2021.
- As the press release dated 22nd November 2021, the company has agreed on the sale of Meridian’s Australian business to a consortium of Shell Energy Operations Pty Ltd, a wholly-owned subsidiary of Shell and Infrastructure Capital Group for a consideration of A$729 million.
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 which could result in lower water levels and could substantially hurt its generation capability. 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 highlighted that the underlying drivers of future business value stayed robust, specifically the growth in customer sales and its commitment developing the Harapaki wind farm. The company expects the group’s operating costs in FY22 to remain in the range of $275 million and $280 million that includes $6 million of SaaS cost reclassification. It also forecasts the group capex to stay between $205 million and $215 million for FY22.
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 discount has been applied to EV/EBITDA Multiple (NTM) (Peer Average) considering the risks associated with the business as well as lower current ratio in FY 2021 on the YoY basis. However, the company has improved its ROE 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 A$4.41 per share (Time: 3:17 PM (GMT +10), Sydney, Australia) on 16th December 2021.
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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