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.
• The company has been witnessing record results in the last two years driven by a strong generation and increasing retail sales volumes. 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.

Source: Company Reports, Analysis by Kalkine Group

Operating Performance for The Month of October 2021

• National hydro storage reduced from 134% to 119% of the historical average in the month to 11 November 2021. The company’s monthly total inflows stood at 83% of the historical average. Its Waitaki catchment water storage at the end of October 2021 stood at 149% of the historical average, while the water storage in Meridian’s Waiau catchment remained below average at the end of October 2021. As per the release, Meridian’s New Zealand retail sales volumes in the month of October 2021 were 2% lower than the month of October 2020.
• In the press release dated 29 October 2021, the company confirmed that the suspension of the 50MWh per hour Potline 4 contract between Meridian and New Zealand Aluminium Smelters Limited (NZAS) is extended up to and including 31^st January 2022.

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 may 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 lower current ratio in FY 2021 on the YoY basis. However, it has posted increased net margin 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 $4.610 per share (Time: 3:32 PM (GMT +10), Sydney Australia) on 15^th November 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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