Meridian Energy Limited

MEZ Details

Meridian Energy Limited (ASX: MEZ) is New Zealand's largest electricity company. Notably, the Government retains 51% ownership of Meridian.

Results Performance (FY21 ended 30 June 2021)

• EBITDAF down 15%: The company’s operating revenue for FY21 stood at ~$4,296 million, and its EBITDAF for the period stood at $729 million, a decline of 15% on the previous year.
• NPAT down 27%: Underlying net profit after tax for the full year period stood at $232 million, a decline of 27% on the previous year.
• Final Dividend at 11.20 cps: The Board of Directors declared a final ordinary dividend of 11.20 cents per share, unchanged from the previous year. This brings the total ordinary dividends declared in FY21 to 16.90 cents per share, also unchanged from last financial year.

Key Data (Source: Company Reports)

Operational Performance for August 2021:

• National hydro storage from the start of August month till the date of 10 September 2021, increased from 103% to 126% of historical average. North Island storage increased to 83% of average and South Island storage increased to 139% of average by 10^th September 2021.
• Its August 2021 monthly total inflows were 161% of the historical average
• As per market data, national electricity demand in August 2021 was 0.3% lower than the same month last year.
• Compared to August 2020, segment sales increased in residential +14.2%, small medium business +18.8% and corporate +17.2%. Large business volumes were -10.3% lower and agricultural volumes were -5.0% than August 2020.

Recent Update:

• On 16 September 2021, the company informed the market that Jason Stein, CEO of Meridian Energy Australia and Powershop Australia, will continue in his role until 31 March 2022 or the earlier completion of the Meridian Energy Australia ownership review.

Outlook:

The company’s balance sheet is resilient, which can be understood from the fact that S&P Global Ratings reaffirmed Meridian’s corporate credit rating as BBB+/Stable/A-2. It was mentioned that NZ requires ~12 TWh of the new grid generation by 2030 in order to meet the 100% renewable energy target.

Key Risks:

The company is exposed to the risks like demand risks, market supply risks, catastrophic event, adverse hydrological conditions risk, etc.

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 company’s operating margin and net margin for FY21 stood at 14.0% and 10.0%, better than the FY20 result of 10.9% and 5.2%, respectively, implying improvement in the operational efficiency of the company. Its ROE for FY21 stood at 8.3%, better than the FY20 result of 3.3%.

The stock has been valued using EV/EBITDA multiple based illustrative relative valuation method and the target price reflects that there might be a rise of low double-digit (in percentage terms). A discount has been applied to EV/EBITDA Multiple (NTM) (Peer Average) considering higher operating expenses in FY 2021 on the YoY basis. However, its balance sheet is resilient which could help moving forward.

Considering the aforesaid facts, we give “Buy” recommendation on the stock at the current market price of A$4.750 per share, up by 0.635% on 1^st October 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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