MCY Mercury NZ ( MRP Mighty River Power)

[Snoopy]

Mercury is using special dividends to payout surplus cash in years of high profit whilst having a normal dividend that goes up more slowly-maybe in keeping with inflation and improved efficiency?
Should free cash flow and demand reaches a level that allows the building of new generation then it may disappear for a time.


Mercury defines 'Free Cashflow' as

"Operational Cashflow" less "Stay in Business CAPEX".

Building a new power station would not involve what I would describe as "Operational Cashflow". I would call it "Investment Cashflow". So we could have a situation where "Free Cashflow" remains unchanged , even as Mercury starts building a new power station! However it would seem incredulous that Mercury could just ignore the financial commitments required to build a circa $500m new power plant and carry on paying dividends as though nothing abnormal was happening. Yet I suppose if the existing generation assets are revalued up by enough, then a whole new power station could be funded by borrowing. So perhaps Mercury are indeed saying, with their dividend policy, that future dividends will not be affected by such a potential project?

You do raise an interesting point fish about special dividends perhaps being connected to having 'surplus capital', even if some of this 'Surplus Capital' is indeed "Thin Air Capital". I might have to take those special dividends out of my thin air capital piggy bank, and check there really is enough borrowing capacity left to build that new power station?

SNOOPY

[Snoopy]

Summary FY2016 Perspective:

I value MCY as worth between $2.70 and $2.93 (ex-dividend).

Summary FY2017 Perspective:

I value MCY as worth between $2.87 and $3.59 (ex-dividend).


There is quite a large uplift in the upper limit of my MCY share valuation year on year. I have changed by valuation window from the last six years of operations to the last four years of operations. Normalised Dividend payments on average have been much greater in recent years. So it is no surprise that the upper limit of my valuation, based on dividend payments, has risen in line with this. However the high dividend payments have been accompanied by a draining of the imputation credit balance over the same period. I can't help thinking that the imputation credits have been pumped for all they are worth over the last four years and the well is now dry. This being so, I find it hard to conceive of that upper limit ($3.59) of my valuation range being reached.

If you regard Mercury as a dividend paying cyclical then I have a 'rule of thumb' for the share price that says over the business cycle, Mercury is likely to cycle at 20% above and 20% below the business cycle mean value based on earnings. This implies a range (around the earnings valuation mean of $2.87) of $2.30 to $3.44. If you look at the share price chart since listing, that pretty much covers the share price range that Mercury has traded since listing. Given the very low interest rates around at present, and the benign market environment for the Gentailers, it is no surprise that MCY is trading near the top end of this range.

SNOOPY

[Snoopy]

You do raise an interesting point fish about special dividends perhaps being connected to having 'surplus capital', even if some of this 'Surplus Capital' is indeed "Thin Air Capital". I might have to take those special dividends out of my thin air capital piggy bank, and check there really is enough borrowing capacity left to build that new power station?


I am going to modify my 'thin air capital' table by removing the respective special dividends paid over the period of consideration. This is one way to test fish's theory that the special dividends can be considered as capital optimisation adjustments. I am going to start from the year FY2014. This is based on the assumption that at the end of FY2013 the capital structure of the company was optimised. So it is only the thin air capital generated after that time, less any capital optimizing special dividends, that count as possible future power station development capital.



YearNew Thin Air CapitalPost Tax Effect MultiplierEffective New Thin Air CapitalSpecial DividendPost Tax Effect MultiplierSurplus Capital ReturnedSurplus Capital Returned per Share


FY2014$40m0.72$28.8m$0m1$0m0c


FY2015$421m0.72$303.1m$70m1$70m5.0c


FY2016$136m0.72$97.9m$35m1$35m2.5c


FY2017$48m0.72$34.6m$56m0.72$40m2.9c


Total$464m$145m10.4c



Note:

1/ A post tax effect multiplier of 1 indicates that tax has already been paid on this dividend
2/ A post tax effect multiplier of 0.72 indicates that the dividend was not imputed and 28% tax needs to be paid.

The remaining thin air capital on the balance sheet is therefore: $464m - $145m = $319m

The net total of this 'thin air capital' that has been accumulated could theoretically support extra debt 'd' according to the company's optimised gearing ratio.

'd' / $319m = 45% => d=$144m

We thus have a total of amount of: $319m (equity) + $144m (debt) = $463m investable available to build a new geothermal power plant. Compare this to the $475m cost of building the Ngatamariki 85MW thermal plant in FY2013. This is really spooky. The difference between those figures is only 3%, well within the margin of error! It does look like your suggestion that the special dividends are part of a wider capital optimization strategy, fish, are credible!

Readers may be wondering why I didn't include special dividends in my dividend valuation before. I hope you can now see that to do so would have been 'double counting'. You should only account for the effect of these special dividends once in any valuation. In my instance the effect of the 'thin air capital' less 'special dividends' is taken as a capital adjustment that allows a new power station to be constructed. The value can then be attributed to the new power station alone.

Nevertheless there is still enough 'thin air capital' available to build that new power station if required. This is the important point and the reasoning behind my upping the calculated valuations by 10% during the valuation process. So none of this affects my valuation of the company.

SNOOPY

[Snoopy]

Mercury are looking at the future-for instance an investment with Tesla into battery storage -initially a mere 100gw storage at an Auckland site to investigate .
They are into solar installations.
They have bought electric company cars and have built alliances with other companies doing the same.
they subsidise electric bikes


Fraser Whineray, Mercury CEO, has become a poster boy for the widespread adoption of electric vehicles in NZ. I have often wondered whether this is simply a 'greenwash veneer' so that Fraser can go to international conferences and rub shoulders with big wigs like Eoin Musk. Will electric vehicles really be able to lift Mercury Energy profits over the next few years? It is time to find out.

Most power consumers will pay a monthly energy bill that contains a fixed charge and a variable charge. This perpetuates an illusion that because people understand 'how they think themselves' as regards their power bills, they also understand 'how energy companies think' by imagining themselves on the flip side of their monthly transaction. Unfortunately consumers do not really understand how energy companies think. Because the billing system that the energy company manages is far more complicated than what the consumer sees. I am a Christchurch consumer and consequently my electricity lines are managed by Orion. I don't suppose all line's companies operate in exactly the same way. But the Orion example will serve the purpose of this explanation. Stay tuned if you want to find out more.

SNOOPY

[Snoopy]

Will electric vehicle really be able to lift Mercury Energy profits over the next few years? It is time to find out.

Most power consumers will pay a monthly energy bill that contains a fixed charge and a variable charge. This perpetuates an illusion that because people understand how they think themselves as regards their power bills, they also understand how energy companies think by imagining themselves on the flip side of their monthly transaction. Unfortunately consumers do not really understand how energy companies think though, because the billing system that the energy company manages is far more complicated than what the consumer sees. I am a Christchurch consumer and consequently my electricity lines are managed by Orion. I don't suppose all line's companies operate in exactly the same way. But the Orion example will serve the purpose of this explanation. Stay tuned if you want to find out more.


In the back page of a free local Newspaper about a year ago, Orion published details of their electricity price delivery charges. I was probably one of a handful of people who read the advertisement and probably the only one who cut it out. To keep it simple I will talk about 'General Connections' of which there were just over 198,000 in the Orion serviced area.

Orion Electricity Delivery Prices (from 01-04-2017)



Peak Charge (peak period demand)$0.5310 /kW/day


Volume Charge: Weekdays Mon-Fri 7am to 9pm$0.08773 /kW


: Nights and Weekends$0.01125 /kW


Low Power factor Charge$0.20 /kVa/day



Notice how different this structure is to the prices you pay in your own power bills at home. For a start there is no 'fixed daily charge'. The daily charge varies depending on your power use over the peak power period. Consider the scenario of someone cooking dinner for a family on a cold winter's night. Let's say the peak power use was 5kW over the hour (5kWh) while I (as an example) was cooking dinner. This means that my provider (Contact Energy) would be paying a daily charge delivery of:

$0.5310/kw x 5 kW = $2.65

Since I am only being charged 32.95c/day on the low user rate (29.66c with GST added and 20% discount taken off) this means Contact are losing out big time on fixed charges. Of course if I was away on holiday and peak power consumption is a background 150W, then my daily charge would for me billed to Contact would be.

$0.5310/kw x 0.15 kW = 8c

So even with my low user rate, Contact are well in the money.

My house has a dual electricity pricing structure. I pay 28.129c 'Anytime' ( 25.32c with GST added and 20% discount taken off) and 17.548c ( 15.79c with GST added and 20% discount taken off) 'Night Boost'. I should point out that these numbers will cover the transmission costs of Transpower and Orion as well as the energy cost of the power supplied by Contact Energy. So it is not an apples with apples comparison to compare these charges with what Contact pays to Orion. What is of interest is the ratio of Peak to off Peak charging.

In my case my 'Night Rate' is 17.548c/28.129c = 62% of the day rate charge.

In the case of Orion their 'Night Rate' is $0.01125/ $0.08773 = 13% of the day rate charge

Now I don't like peak charging. But Orion hates power peaks with an absolute passion. They really sting the energy providers hard, charging them nearly eight times more per kilowatt at peak times.

I won't go into the power factor charge here, as that is something the energy providers take on the chin and we the end line consumer gets away with.

The point of this post is this. Energy providers are getting quite different pricing signals from Orion, compared to what they pass on to we consumers. Orion (and Transpower) hate power peaks with a passion. If Fraser could convince we consumers to use a lot more off peak power this could benefit the end user in the pocket, but benefit the energy provider much more. I think the quest to get a lot more consumers charging their EVs at night could be a real winner for the Energy Retailers like Mercury. Time to put some big picture numbers on it!

SNOOPY

[horus1]

It is worth reading the note from Z to the sharemarket a couple of days ago. The whole transport sector is changing. Electric vehicles are not the only thing being modified. There will not be another long life base load power station built in NZ. That is what trust power said about a year ago . Solar is being built overseas for about 2c/Kwhr. Technology is driving costs down for generation. The art in the future will be to avoid transmission and distribution signals.

[fish]

It is worth reading the note from Z to the sharemarket a couple of days ago. The whole transport sector is changing. Electric vehicles are not the only thing being modified. There will not be another long life base load power station built in NZ. That is what trust power said about a year ago . Solar is being built overseas for about 2c/Kwhr. Technology is driving costs down for generation. The art in the future will be to avoid transmission and distribution signals.

And mercury is well positioned for this-working with Tesla to experiment with battery storage on the grid at Auckland.
Solar installation and electric vehicles
.Change is inevitable and its good to be with a company situated for this and close to Auckland.

[Marilyn Munroe]

And mercury is well positioned for this-working with Tesla to experiment with battery storage on the grid at Auckland.
Solar installation and electric vehicles
.Change is inevitable and its good to be with a company situated for this and close to Auckland.

Do you want to know what the cheapest mass stored energy device is?

Drum roll please.... It is a lake.

Boop boop de do
Marilyn

[Joshuatree]

Jantar reckons Contact has the best(2) pumped storage locations.

This hasn't copied well(scroll down) but NZ is the 4th highest user of electricity per capita after USA ,Sth Korea, and Australia. Ok take the smelter away and we'd be lower down i guess but uk japan germany and russia are below us. .lots of efficiencies to improve on i guess.


Electricity Consumption

Kilowatt Hour Consumption Per Capita Per Annum


USA South Korea Australia New Zealand Singapore Japan Germany Russia Hong Kong U.K. Malta Malaysia China Thailand Vietnam Jamacia Indonesia India Philippines North Korea Sri Lanka Pakistan PNG Bangladesh Myanma








The world economycontinues to electrify;nearly 67% of theincrease in demand forenergy comes fromelectricity
The rising share reflectsconsumer preferencesfor energy that is cleanand convenient at thepoint of use
High growth opportunityin emerging markets asprosperity rises
 Support this growthwith clean and greenenergy



]







]kilowatt hour consumption per capita per annum.Source data: World Bank

[Dassets]

Wiki has nz at 55th. The other issue is other countries eg russia use gas/coal/diesel for direct heating and hot water. Damned statistics....

[fish]

Do you want to know what the cheapest mass stored energy device is?

Drum roll please.... It is a lake.

Boop boop de do
Marilyn
What a star
Cheapest by far-and thats where mcy obtains most of its energy .
MCY are building with Tesla experimental battery storage.
I think the cost to mcy is a drop in the ocean and it will gain a lot of information.
For instance under a wet winter they could purhase surplus electricity for a pittance at night and release it direct into Auckland at peak times and potentially make a profit.Other uses might be if there is a transmission fault....etc

[Dassets]

I looked at Telsa battery tech, which is fairly similar to others but is a poster boy. I ran some rough numbers over the South Australia installation. Within a NZ pricing environment I could only generate revenue of circa $30 to $35m. This excludes energy cost in nor operational costs nor capital costs. This is on a capital spend of circa (estimated) of NZD $100m. The Vector build in GI meant an expensive sub_station rebuild could be avoided at least for a while. So there could be other factors. But stand alone they are not financially viable.

[horus1]

Where these batteries come into there own is when you are avoiding investment in wires. i.e. Lines business' The distribution and trans. assets are pit in for about the top 10% of load. Batteries avoid the need to put in long term assets and give you option value.

[Dassets]

Let me say this another way. That $100m battery will provide enough power for up to an hour for 30000 homes. For Auckland work on 1mil homes for ease. Nzd3.3 bil for 1 hr for energy excluding industrial, commercial etc demand. Then you still need the lines anyway. No board could ever commit capital except insignificant capital as a test to gather some knowledge. I would rather have a 2nd harbour crossing than a battery that provides an hour of electricity. Just saying.

[horus1]

you missed the point . The most expensive costs in supplying electricity these days are the wires which are long life low return assets . You can avoid many of these costs by using batteries. I am talking about the costs not the artificial pricing

[Snoopy]

The point of this post is this. Energy providers are getting quite different pricing signals from Orion, compared to what they pass on to we consumers. Orion (and Transpower) hate power peaks with a passion. If Fraser could convince we consumers to use a lot more off peak power this could benefit the end user in the pocket, but benefit the energy provider much more. I think the quest to get a lot more consumers charging their EVs at night could be a real winner for the Energy Retailers like Mercury. Time to put some big picture numbers on it!


I have been inspecting the Mercury Energy website and the deal for EV owners goes like this.

1/ You have to be signed up with Mercury as your power provider to take part (no surprises there).
2/ Charge your EV between 11pm and 7am and you can save 20% of your home's entire electricity bill between 11pm and 7am. This means you could program your washers are dryers to work overnight, for instance.

The website then goes on to talk about:

"Electricity price - $0.1724 per kWh, based on Vector Central standard user inclusive pricing as at Aug 9 2017 3:36PM, including GST, pre PPD and pre PPD and post plug-in vehicle charging discount (20%)."

However the equivalent price I pay in Christchurch for night rate electricity $0.1579 per kWh (with GST added and 20% discount taken off). So it looks like I am already on a much better deal than Mercury's 'special' rate for plug in EV owners. Admittedly this could be because Vector's network charges in Auckland could be higher than Orion's network charges in Christchurch.

Mercury lists the Nissan Leaf's (by far the most popular electric car) EV commute efficiency as 17 kWh/100km. Let's say our typical Auckland EV commuter owner travelled 150km per week. This means the annual energy used would be:

52 x 17kWh x 1.5 = 1326 kWh

The money that Mercury would charge per year for such a customer's EV use would be:

1326 kWh x $0.1724 per kWh = $229

The government goal is to put 64,000 EVs on our roads by the end of 2021. In September 2017 it was reported that 4541 EVs were on the road. So the incremental gain since the last reporting period will be roughly 60,000. As at September 2017 around half of the EV fleet was registered in Mercury's core EV target market of Auckland - 2452. So we might expect around half of the projected new EVs to be registered in Auckland.

The electricity retailers market share, based on ICP count, may be found here.

https://www.emi.ea.govt.nz/Retail/Reports/HR5D1V

The current (01 Dec to 31 Dec 2017) market share in Auckland for Mercury is 229,672/601,111 = 38%

However I believe that Mercury will be pushing above its weight in customer EV ownership, because they are specifically targeting that market. I will account for this by using an extra 20% rule of thumb multiplier. Finally then, we can estimate the total extra revenue that Mercury might expect from incremental EV uptake by the end of 2021:

$229 x 30,000 x 0.38 x 1.2 = $3.133m per year

How much of this will translate to incremental profit is another question. My hunch is most of it, because Mercury's cost of incremental energy units is low, and all of those units will be delivered 'off peak' when Transpower and Network Operators costs are very low. So lets be really optimistic and say it is all profit for Mercury. Take some tax off and I get:

$3.133m x 0.72 = $2.256m

Spread that over the 1,400m share on issue and the incremental profit works out at:

$2.256m / 1,400m = 0.16c /share

While welcome, this is barely a blip on incremental company earnings. Of course Fraser would argue that 2021 is merely a point on the journey to full electrification. But once all the early adopters are on board and road user charges kick in I predict a slow down in the rate of EV adoption. A 10% electric vehicle fleet for NZ (five times the 2021 projection) would still only mean a 0.8cps incremental profit (NPAT) gain for Mercury. Put like this, it does seem like Fraser's enthusiasm for EVs could be overselling the realistic profit gains available to Mercury Energy. Perhaps when he eventually moves on as CEO of Mercury Energy, an senior opening at Disneyworld's Fantasyland would be the logical career path for our Fraser?

SNOOPY

[Dassets]

Horus. No I havent. The batteries only last 5000 cycles and then must get replaced. That is 5000 hours of 100 mwh in the case of SA or 500 gwh or there abouts ignoring battery efficiency loss. I can buy 500 gwh for $40m. Why would i pay 100m for batteries which i still need to buy power for to store. Now you still need wires to get the energy in or out of the batteries . Batteries in nz are nonsensical financially.

[fish]

I looked at Telsa battery tech, which is fairly similar to others but is a poster boy. I ran some rough numbers over the South Australia installation. Within a NZ pricing environment I could only generate revenue of circa $30 to $35m. This excludes energy cost in nor operational costs nor capital costs. This is on a capital spend of circa (estimated) of NZD $100m. The Vector build in GI meant an expensive sub_station rebuild could be avoided at least for a while. So there could be other factors. But stand alone they are not financially viable.

Those figures appear close to viability.Operational costs would be very small-it would be fully automated.For much of the year night power on the wholesale market is a fraction of the wholesale cost at peak times.
I can see why mcy are going to experiment in this area.
Battery life is being extended and the cost is falling.
I assume when you quoted $100m that was for the whole plant and the battery would be much less.Only the battery would need replacement/augmentation in the future-you wouldnt have to spend $100m for this in the future

[Snoopy]

The remaining thin air capital on the balance sheet is therefore 'This Air Capital Gained' less 'Surplus capital Returned': $464m - $145m = $319m

<snip>

Readers may be wondering why I didn't include special dividends in my dividend valuation before. I hope you can now see that to do so would have been 'double counting'. You should only account for the effect of these special dividends once in any valuation. In my instance the effect of the 'thin air capital' less 'special dividends' is taken as a capital adjustment that allows a new power station to be constructed. The value can then be attributed to the new power station alone.


I see that after my little treatise against 'double counting', I have managed to:

1/ not count the special dividend AND
2/ subtract the effect of the capital return on the 'thin air capital' retained by the company.

By not counting either effect, it looks like I have 'zero counted' the excess capital, which some might see as as bad a sin as 'double counting'.

To see the possible effect of all this, it is necessary to take a step back and ask a more fundamental question: "What am I trying to show?"

What shareholders want to know is what will happen in the future, not what has happened in the past. As shareholders our interest in 'thin air capital' rests on what Mercury is going to do with it. The important point is that 'right now', Mercury has sufficient capital on the books to build a new 100MW geothermal plant. The reason they have this capital is because of historical asset revaluations. These asset valuations were made in a climate of low interest and hence low discount rates. As interest rates rise the pressures that created these revaluations could stagnate or even reverse. Thus as a forecast tool, it is probably not reasonable to assume that 'thin air capital' will continue to be generated in the medium term. So it is probably not wise to forecast future distributions of excess capital (special dividends) into shareholders expected future returns.

To summarize:

1/ I am comfortable with accounting for the remaining and existing thin air capital on the books.
2/ I am not comfortable in assuming that the special dividends of the last few year are indicative of what shareholders might expect in the future.

This means my previously published fair business cycle valuation range:

"between $2.87 and $3.59 (ex-dividend)."

Remains unchanged. At the moment I consider we are close to the top of the business cycle. At $3.36 on the market today, MCY is IMO a 'hold', principally because of the poor alternative returns on fixed interest investments. I was thinking of reducing my holding, but I can't stomach putting the funds into a bank earning a measly 2% interest!

SNOOPY

[Snoopy]

I like snoopys posts and cannot argue with the facts as clearly presented.
But its not the whole picture-for instance customer numbers have increased by 6000.
We can only speculate as to the reasons.


I am still trying to identify that X factor that allows MCY to trade on such a premium PE. What does the longer term market share trend (as measured by ICP numbers and ICP market share) look like?

The following annual market share figures I have obtained from the Electricity Authority website. I have chosen to look at the average over the financial year (1st July to June 30th) for my figures.

https://www.emi.ea.govt.nz/Retail/Reports/HR5D1V



YearMarket Share (All ICPs)ChangeICP CountElectricity Generated (GWh)


FY201718.96%+0.38%397,0747,533


FY201618.59%-0.50%384,6116,842


FY201519.08%-0.17%389,9916,563


FY201419.25%-0.42%390,3876,295


FY201319.67%-0.01%395,2736,462


Last year was the first up tick in market share for five years. Market share isn't everything. Power retailers sometimes let go of their low yielding customers if retention costs do not justify the small profit margin. Last year Mercury had the highest average number of customers for five years. But it was all downhill for the preceding four years. In fact Mercury have only just recruited more customers than they had five years ago. And even then, retail market share is down from five years ago, due no doubt to the growth in the overall market in that time. What we have here is an uptick in a market where retaining retail customers is an ongoing battle. There is no evidence here that last years boost in customers was anything more than a one off event.

In the world of the modern gentailer, matching 'internal customer demand' to 'internal generation capability' is no longer a necessity. It is possible to buy generation capability you do not have on the wholesale futures market. Nevertheless the increased generation 'in house' over the last two years may be driving Mercury's quest to increase customer numbers.

SNOOPY

[Snoopy]

To me the most important metric is cash flow after subtracting interest,operating costs and depreciation .


CEO Fraser Whineray has made a big thing on how operating costs have greatly reduced since MCY was an SOE. But what is the actual pattern of operating costs? Strangely for a statistic so well promoted, it takes a bit of digging to find the operating costs of the business going back. The only graph I could find was the 'Operating Expenditure', listed in the financial commentary section (p12) of the Mighty River Power Annual Review for FY2014. In latter years the figure was listed in the financial commentary sections.



YearNormalised Operating Costs


FY2017$214m


FY2016$217m


FY2015$217m


FY2014$221m


FY2013$243m



The big saving was in the FY2014 year and this is what the company said about that at the time:

"Following the completion of the IPO in May 2013 and with no large scale development projects currently planned due to the current demand conditions, the company has focussed on lowering the cost base and achieved $20m of permanent savings relating to optimization of the life cycle maintenance programme, insurance changes, professional service fees and international geothermal development costs. <snip> Year on year operating expenses fell $99m with $69m one off expenses in FY2013 relating to international geothermal restructuring and IPO costs."

Of course in my comparison table I would never have included IPO costs in operating costs, and I didn't. Likewise I would miss out the financial operating resources formerly dedicated to the international geothermal business which was quickly abandoned when Fraser Whineray took over as CEO.

The trumpeted $20m in ongoing savings is useful, even in light of the large number of MCY shares on issue:

$20m/ 1,400m = 1.4cps

On an after tax basis this means profits have been permanently increased by 0.72 x 1.4c = 1cps

To put this in context, normalised profit (NPAT) was 12cps in FY2017, and 1cps represents 8.3% of that total. Significant and worth having.

Nevertheless, it does look like the 'game changing' reduction in operating costs is over. I would imagine that supervising all of those overseas geothermal projects would have been quite expensive for little immediate return. So good savings would have been made cutting out those costs. The easiest savings in operating costs is to redefine what normal operations are. This seems to be what has happened here: game changing in the past, but not likely to be game changing into the future.

SNOOPY

[Snoopy]

There is only one problem and that is that the cost of new generation is DECREASING. There should be an impairment against the asset values. The gravy train is over.


As horus has identified, if power can be brought to the home in the future at much reduced price, then the value of existing power stations will decrease. But, as tautological as this sounds, the cost of power is not just determined by the cost of producing power. The factors that Mercury look at when valuing their assets can be found in the footnotes of the property plant and equipment pages, specifically p17 of AR2017 (for example), I have tabulated these for the last few years, where available, so that investors can see how these valuation assumptions have changed over time



Financial YearAverage Operational ExpenditureWholesale Energy PriceNet Average Production VolumesPost Tax Discount RateNet Revaluation Movement


FY2017$158m /p.a.$70 to $104 /MWh6567 GWh/year7.5% to 7.9%$52m - $4m = $49m


FY2016$174m /p.a.$66 to $102 /MWh6556 GWh/year7.4% to 7.9%$137m - $1m = $136m


FY2015$168m /p.a.$63 to $97 /MWh7131 GWh/year7.5% to 7.9%$497m - $76m = $421m


FY2014$188m /p.a.$70 to $95 /MWh7107 GWh/yearUnknown$40m - $0m = $40m


FY2013Unknown.UnknownUnknownUnknown$80m - $5m = $75m



So what does all the above mean?

1/ The first thing to recognize is that the above table is looking at long run average prices and costs. In FY2017, the actual power produced by Mercury was 7533 GWh. That was 14.7% above long term projections. Mercury are not valuing their assets based on 'one good year'.

2/ The post tax discount rate looks surprisingly stable, and in absolute terms quite high. It is a pity we shareholders are not privy to the discount rate used in earlier years. But I feel that modest interest rises from current near term lows may not affect the value of generation assets on the books much, if at all.

3/ The modelled wholesale energy price is expressed as a range. This suggests to me that a range of possible future scenarios have been used for valuation purposes and probabilities applied to the respective scenarios evaluated. The higher priced scenarios have a rising maximum price over time, yet the minimum price scenarios look flat. I am not surprised by this. In times of plenty, the price of power generated should trend towards the 'backbone price' of hydro and geothermal generation. In times of shortage, the on market price is likely to be not only higher but more volatile, particularly as 'surplus' thermal power generation stations have been closing.

4/ After a difficult three years (low Waikato inflow over FY2013, FY2014 and FY2015) , the long term projected electricity to be generated per year has dropped by around 8%. Yet the value of the power generating assets has not dropped (they are modestly up in value) over this time.

5/ Average projected Operational Expenditure has declined by 16% over the four years disclosed. This will have an after tax profit effect (based on a 28% tax rate) of 0,72x the 'Operational Expenditure' on an after tax profit basis (for FY2017 $158m x 0.72 = $114m). Net profit for the year FY2017 was $184m. So cutting projected expenditure looks to be having a large effect on the net profit and hence the underlying value of the generation assets that Mercury owns. I note that the largest increase in 'asset generation value' occurred after projected operational expenditure was cut the largest from $188m p.a. to $168m p.a. (co-incidence or not?)

6/ It is a pity that I can't fill the unknown gaps in my table, as this would provide a much better medium term overview of how the revaluation process works in practice.

Summary

Provided:

1/ the projected operational expenditure cuts are sustainable, AND
2/ interest rates do not rise that much AND
3/ 'maybe' generation increases back towards the average projected up to FY2015

I do not see the slashing in value of generation assets that horus is predicting will come to fruition. I feel comfortable as an MCY shareholder that things will be able to continue 'as normal' for a few years yet. Beyond that I should add that Mercury are quite capable of putting up their own solar panels and compete toe to toe with any new generation start ups (including the horus solar co-operative).

SNOOPY

[Joshuatree]

Apologies if you've already covered it Snoopy. How old are the dams, they are getting on arent they?. At some point major works and expense to modernise/strengthen, replace,bring up to today stds etc?

[Jantar]

Hydro dams are built to virtually last forever. There are cement type dams built in the Roman days in Europe that are still working today with no problems.
As for Mercury's dams, the oldest is Arapuni, commissioned in 1929. There were early problems when a crack developed between the dam and the spillway, but this was soon corrected. A new spillway structure was completed around 1990. Karapiro was next, then the main Waikato stations were built during the mid 1950s and early 1960s.

The plant within the dams does require regular refubishment and upgrading. As a general rule the generators have a design life of at least 30 years before refurbisment, and the the turbines are usually at least 50 years before refurbisment. I worked in the Central Waikato power stations from 1979 to 1992, and the first major upgardes were just starting as I left that area to move to the South Island. With 8 stations on the river, and around 2 years to complete each, it will be a continuous programme to work through them

[Joshuatree]

We are fortunate to have your in depth knowledge and understanding on the threads Jantar. Thanks again.

[Snoopy]

Apologies if you've already covered it Snoopy. How old are the dams, they are getting on arent they?. At some point major works and expense to modernise/strengthen, replace,bring up to today stds etc?


Joshuatree, there is a distinction made between CAPEX for operating expenses and CAPEX for generation development. I refer you to page 16 of the November 2017 investor presentation.

http://issuu.com/mercurynz/docs/investor_20relations_20presentation?e=25554184/55357570

You will see that 'operating expenses' (stay in business expenses) are projected to be flat at about $200m for FY2014 and all subsequent years. The operational expenses are what count towards the book asset valuations. One off upgrades, the kind of thing that you are talking about, do have an effect but are depreciated over many years. What is more this depreciation can be undone with subsequent asset revaluations. So there is an argument to be made that such assets do not depreciate at all.

Mercury has an extensive plan to modernize their dams. This program started in earnest in FY2017. But reading between the lines, any modernization is to the electrical systems and the turbine generator mechanics of the dam. The civil structure, the concrete dam that you see, is not down to be upgraded. Technically the dams (concrete structures) have to be depreciated to fall in line with accounting standards. In practice their life may extend to hundreds of years. So I don't think there is much to fear in hidden very high expenses to come from rebuilding the dams. Some things really are built to last!

If you look at the reference I gave you above, the generation Capex is now much reduced from the FY2008 to FY2013 period. It looks to be of the order of $100m in FY2017 and FY2018. The biggest 'threat' om the horizon is if Mercury decide to construct a whole new power station (probably geothermal or wind). But although it would be expensive, such a project will increase the earnings capacity of the company. That's as I see things anyway.

SNOOPY

[Joshuatree]

Many thanks too to you Snoopy your analysis is without peer (even if i dont get it all:)

[Dassets]

IFRS requires assets to be assessed for value in use essentially. Directors are required to make a decision and will typically assess this by measuring cashflow from a cash generating unit. Historical cost only provides a start point to either write up or down. That move is reflected in PPE. It is actually quite simple. The main drivers for value move are revenue, cash costs and discount rates. Other factors include time the assets can generate revenue, capital items like refurbishment etc. Depreciation doesnt come into it btw from memory as it is not cash and you are valuing the cash generating capacity.

[Snoopy]

IFRS requires assets to be assessed for value in use essentially. Directors are required to make a decision and will typically assess this by measuring cashflow from a cash generating unit. Historical cost only provides a start point to either write up or down.


I understand that historical cost has no direct effect on future cashflows. But neither does historical cost reflect current balance sheet values. I would say it is actually current balance sheet values that provide the start point to either write up or down, In a similar vane, current balance sheet values, because they were determined up to a year ago, do not necessarily reflect future cashflows. And that is the reason that Mercury assesses these asset values annually.



That move is reflected in PPE. It is actually quite simple. The main drivers for value move are:

1/ revenue,
2/ cash costs and
3/ discount rates. Other factors include
4/time the assets can generate revenue,
5/ capital items like refurbishment etc.


'Quite simple' ? Yet you have listed five factors (for a start) that go to making up the picture in your 'simple' summary! I accept that this kind of calculation is a 'straightforward' exercise if you are an accountant that deals with these things all the time. But simple? Your brain must be working on overclock Dassets.



Depreciation doesn't come into it btw from memory as it is not cash and you are valuing the cash generating capacity.


Thanks, that makes sense. I do find it hard with the concept of separating the 'operating cashflow' from the 'investing cashflow' from an overall investment perspective though. I am saying this because often the 'investments' become key operational assets in the not so distant future. To give an example from the Mercury universe.:

1/ Suppose Mercury update an existing dam. In the course of upgrading to the latest technology as part of a planned maintenance, the power output is able to be raised by 5% for the same input say 20MW.
2/ Yet if Mercury were to commission a brand new 20MW hydro power station that would be classed as a new investment, and not part of operational cashflow.

The net result of either 1 or 2 is the same from a power making perspective, yet accounting standards demand each scenario is treated differently. I don't get it.

It is a similar dilemma neglecting depreciation in a cashflow analysis. Granted, I understand that depreciation is not a cash item. But before an asset came to be depreciated, it was bought with real cash once. Leaving out depreciation from a cashflow analysis I see as a time trick, that leaves out historical cashflow by selecting an analysis start point to deliberately leave out historical cash flows.

SNOOPY

[Dassets]

You just make an assumption on what the price curve looks like. Not too hard. Apply nodal discounts etc if any. Costs can be forecast. Let me cover the historical cost point. It only provides the start position. Then the value assessment takes over. Eg I build a $100m plant in 2017. In 2018 the price curve falls. I them reassess my expectation of future prices. Costs dont change. I them record a loss as a result of assessment and mark the plant down to $50m. A loss of 50m. Assessment is not done continously. In reality the forward curve doesnt change much either.

[Dassets]

PS investing cashflows would probably include the upgrade . It isnt r and m. But dont confuse cashflows with value assessment. They are two separate processes

[Aaron]

Anyone concerned that the government is having a review of power prices?

Sorry this may have already been discussed earlier in the thread or on another thread.

https://www.tvnz.co.nz/one-news/new-zealand/power-prices-in-spotlight-major-government-review-electricity-market

50% increase since 2000 that is a little less than 3% per year (50/17). The power companies should be applauded they have been helping the central bank whose target is between 1-3%. Admittedly the top end of the range but only in line with inflation per the reserve bank.

Per the reserve bank website.

"Since 2000, New Zealand CPI (Consumers Price Index) inflation has averaged around 2.7 percent. This compares with averages of 2.4 percent in the 1990s, and averages of over 11 percent for the previous two decades. Since September 2002, the inflation target has been to keep inflation within a range of 1–3 percent on average over the medium term."

The magic of inflation.
The funny thing is nz with all its hydro should have some of the worlds cheapest (and cleanest) power but rates are allowed to be high so that the power companies can reinvest in new generation. I haven't looked at the books lately but I suspect the bonus dividends we get every year might be the reinvestment funds.

Our best hope is that the people of nz still own 51% so they might go easy on us. Power companies and lines companies are a license to print money.

[Joshuatree]

Thanks Aaron. I saw the headline and couldn't find it again. Power companies have had a great run s/p and div wise. Govt reviewing this is good and i think many will be very concerned re the Getailers they have in their portfolios.. Too good to last.

[blackcap]

Did I hear Megan Woods lie and say that "price have increased by 50% in real terms"? I think she has her terminology wrong and should be saying "nominal terms". Spin abounds in the political sphere. I know in 2000 new grads were getting around $30k in their pay packets. What are new grads starting out with now? How does that relate to a 50% increase in power prices since 2000?

[couta1]

Did I hear Megan Woods lie and say that "price have increased by 50% in real terms"? I think she has her terminology wrong and should be saying "nominal terms". Spin abounds in the political sphere. I know in 2000 new grads were getting around $30k in their pay packets. What are new grads starting out with now? How does that relate to a 50% increase in power prices since 2000? More Communist propaganda, prices haven't increased at all in real terms since 2004.

[Joshuatree]

If you can put your politics aside for a mo ,the fact is the Govt is doing a major review, thats the fact holders need to be looking at.
"So, she's launching a review of the entire electricity market - from generation to retail and distribution. It will look at whether the price we pay is fair, if the market is competitive and properly regulated and if companies are geared up for emerging new technologies.

The Government also wants all electricity generation to be from renewable sources by 2035 - so electricity companies agree that the time is right for a major review."

[hogie]

If you can put your politics aside for a mo ,the fact is the Govt is doing a major review, thats the fact holders need to be looking at.
"So, she's launching a review of the entire electricity market - from generation to retail and distribution. It will look at whether the price we pay is fair, if the market is competitive and properly regulated and if companies are geared up for emerging new technologies.

The Government also wants all electricity generation to be from renewable sources by 2035 - so electricity companies agree that the time is right for a major review."


I thought the government wanted to regulate the entire electricity market and set the prices? Or was this just pre-election talk a couple of years ago ...

[couta1]

I thought the government wanted to regulate the entire electricity market and set the prices? Or was this just pre-election talk a couple of years ago ... They did pre-election and I'm sure that's their preferred option, maybe this review could lead down that path if the findings lean a certain way,can we trust the review to have no bias? Remember Winnie also wanted to buy back the power companies off shareholders for a song.

[Snoopy]

YearNew Thin Air CapitalPost Tax Effect MultiplierEffective New Thin Air CapitalSpecial Dividend Per SharePost Tax Effect MultiplierSurplus Capital Returned


FY2014$40m0.72$28.8m$0m1$0m


FY2015$421m0.72$303.1m$70m1$70m


FY2016$136m0.72$97.9m$35m1$35m


FY2017$48m0.72$34.6m$56m0.72$40m


Total$464m$145m



Note:

1/ A post tax effect multiplier of 1 indicates that tax has already been paid on this dividend
2/ A post tax effect multiplier of 0.72 indicates that the dividend was not imputed and 28% tax needs to be paid.

The remaining thin air capital on the balance sheet is therefore: $464m - $145m = $319m

The net total of this 'thin air capital' that has been accumulated could theoretically support extra debt 'd' according to the company's optimised gearing ratio.

'd' / $319m = 45% => d=$144m

We thus have a total of amount of: $319m (equity) + $144m (debt) = $463m investable available to build a new geothermal power plant. Compare this to the $475m cost of building the Ngatamariki 85MW thermal plant in FY2013. This is really spooky. The difference between those figures is only 3%, well within the margin of error! It does look like your suggestion that the special dividends are part of a wider capital optimization strategy, fish, are credible!



Anyone concerned that the government is having a review of power prices?


The funny thing is nz with all its hydro should have some of the worlds cheapest (and cleanest) power but rates are allowed to be high so that the power companies can reinvest in new generation. I haven't looked at the books lately but I suspect the bonus dividends we get every year might be the reinvestment funds.


Aaron, as you can see from my post above - I did look. My conclusion was that the special dividends paid to date have left room for reinvestment. If I may quote from AR2015 p15

"Over the past two years in light of lower demands for growth capital expenditure, the company has made significant headway, returning cash to shareholders while retaining balance sheet flexibility for future growth opportunities."

It looks like a case of management 'doing what they say they will do' to me. Not an asset strip for cash.

SNOOPY

[Snoopy]

PS investing cashflows would probably include the upgrade . It isnt r(epairs) and m(aintenance).

This from p40 of AR2016, indicating how Mercury separate the two.

"Growth Capex represents capital expenditure incurred on new initiatives and projects to enable the company to increase its earnings, with the majority of the expenditure relating to the further deployment of smart meters by Matrix."

"Conversely (S)tay (I)n (B)usiness capex represents the capital expenditure incurred by the company to retain the assets in good working order."

The problem with this distinction, as I see it, comes with very long lived assets. Replacing a turbine that is 50 years old, you will find technology has moved on. The very act of replacing a turbine and hence creating a fifty year technology leap will in itself create an operational performance improvement. And I dare say you could say the same on the electrical side of the business. Thus in my view, Investment capex and SIB capex becomes blurred.

SNOOPY

[Snoopy]

What is ROIC (I assume return on invested capital or return on assets)
Correct me if I am wrong but with a 5.1% return on assets and interest of 9.4% doesn't that mean any debt is reducing value for shareholders.

As assets are being revalued every year. Should I look at the discount rate used on their DCF model to revalue assets. It all gets confusing for a simple person like myself.


It isn't sexy. But some relief from debt is on the horizon with those high interest loans rolling over.

From p63 of AR2017

"The company's relatively high average interest rate of 8.7% on net debt of $1.038 billion reflects interest rate hedges put in place in 2008, prior to the global financial crisis and subsequent decreases in interest rates, ahead of the company's significant geothermal development program. These hedges mainly mature at the end of 2018 financial year. From that time the estimated net cash flow benefit at current rates is approximately $20m per annum."

$20m in interest payments saved should see $20m (1-0.28) = $14.4m flow through to the bottom line after tax.

$14.4m / 1,400m = 1.0cps

That may not sound game changing, and it isn't. But it is five times more than the profit gain I expect to see from the incremental energy Mercury will sell to power EVs after four years (to the end of FY2021).

SNOOPY

[Jantar]

....... Replacing a turbine that is 50 years old, you will find technology has moved on. The very act of replacing a turbine and hence creating a fifty year technology leap will in itself create an operational performance improvement. And I dare say you could say the same on the electrical side of the business. Thus in my view, Investment capex and SIB capex becomes blurred.

SNOOPY

Technology has not moved as much as you may think. Hydro turbines in the mid 1950s were already quite advanced and achieving around 90% efficiency at 80% wicket gate opening (around 90% of maximum generation), but with a fairly wide operating range. Minimum load without cavitation or rough running was generally 50% load.

Modern turbine design does allow for either greater efficiency at around 92% with a narrower operating range, or slightly less efficiency but with a much greater operating range hence reducing cavitation. Generally there is little extra generation achived by replacing turbines, but large gains can be made in reducing maintenance costs and/or increasing flexibility.

[fish]

thanks jantar for your expert and clear explanations.
Sometime again you pointed out that pumped hydro is a possible way of storing hydro and contact is best placed to do this.
This has intrigued me but I would have thought storage of whatever nature is best near population centres hence I like mcy experimenting with tesla-location in auckland-cost around 1 million.
You might be interested that TILT(infratil) are building storage in Adelaide-using a disused quarry near Adelaide-but the cost is $400 million.
We know that battery storage is getting cheaper but the cost of building pumped hydro will not.
IMHO we need to explore storage but mcy have a great advantage in controlling generation and as they improve ways of doing it the cheapest way to store is reducing release of water from their numerous dams.
Have they got any ideas about increasing the height of any dams in the waikato system?

[Jantar]

.......
Sometime again you pointed out that pumped hydro is a possible way of storing hydro and contact is best placed to do this.
This has intrigued me but I would have thought storage of whatever nature is best near population centres hence I like mcy experimenting with tesla-location in auckland-cost around 1 million.
You might be interested that TILT(infratil) are building storage in Adelaide-using a disused quarry near Adelaide-but the cost is $400 million......

Have they got any ideas about increasing the height of any dams in the waikato system? For pumped storage to work there needs to be a reservoir (lake) at both the top and bottom of the scheme. There are no such lakes anywhere near any population centers in NZ. The Adelaide proposal will only give a small amount of intra-day storage. It will provide 300 MW (about the size of Roxburgh) for 4 1/2 hours, and on that basis is much better than a battery. However that short duration does not allow it to replace any thermal generation as the shut down and start up times for thermal plant is much longer that that. It will allow Tilt to smooth out their wind generation, and that would be a big help to South Australia.

Ass Prof Bardsley from the University of Waikato did look at a small projec,t like this one, at Kinleith using water from Lake Maraetai, but in the end was uneconomical.

For a similar cost to the Adelaide scheme we could have the Lake Hawea scheme running which could provide a month's worth of additional storage as apposed to Adelaide's 4 1/2 hours.

As for raising the heights of any of the dams on the Waikato, that would be a win/lose proposal for MCY. Except for Arataia to Ohakuri, the outflow from each dam is already directly into the lake for the next dam, so raising any lake level simply decreases the net head on the station up stream. What is gained on the station where the dam is raised is lost from the station imediately upstream.

[fish]

thanks jantar
I can understand how raising the head of one dam reduces the head of another but wouldnt that also enable more storage of power by being able to store more water which can then be released at periods of high demand?

[Joshuatree]

We've got Lake Taupo for that fish;) and we would never get resource consents etc anyways.

[Jantar]

....but wouldnt that also enable more storage of power by being able to store more water which can then be released at periods of high demand? Yes it would provided the operating ranges were also extended. However it would only be a very small amount. I can't remeber just what the storage values were for many of the Waikato lakes, but it would not be very much overall. Ohakuri was around 5 MWh per cm and it probably has the greatest potential gain from raising.

[couta1]

Excellent half year result, cannot for the life of me understand why it was being sold at $3.22 yesterday when upgraded guidance had already been issued ,should be trading at at least $3.40, rational market, yeah right.

[couta1]

HaHa, still trading at $3.22, finest display of market dumbness I've seen in a while.

[blackcap]

Maybe because there was an expectation earlier on that Taupo was full and Pukaki was going to empty out but now with all the rain and Pukaki being full and power prices being low it does not help MCY as much as earlier? Or is my thinking far too short term?

[couta1]

Maybe because there was an expectation earlier on that Taupo was full and Pukaki was going to empty out but now with all the rain and Pukaki being full and power prices being low it does not help MCY as much as earlier? Or is my thinking far too short term? Still, full year guidance and divvy up on last year.

[fish]

HaHa, still trading at $3.22, finest display of market dumbness I've seen in a while.

I know
Been buying heaps this morning

[couta1]

I know
Been buying heaps this morning Looks like someone big is having a sell down, going by the way that $3.22 sell price is being continuously loaded up.

[fish]

Looks like someone big is having a sell down, going by the way that $3.22 sell price is being continuously loaded up.

thanks for that advice couta
I kept my buy price a bit lower and really topped up big-seemed silly not too with a full years guidance of 15 cents divi plus those valuable imputation credits

[value_investor]

Good to know I'm not the only one that saw this one, I'm also perplexed at this price. I kept looking through to see what is wrong with it at this price. Happy to get in at 3.23.

[RTM]

Good to know I'm not the only one that saw this one, I'm also perplexed at this price. I kept looking through to see what is wrong with it at this price. Happy to get in at 3.23.

I would guess that concerns about the upcoming review of power prices may be worrying some.
https://www.radionz.co.nz/news/national/349915/nz-electricity-industry-to-be-reviewed

[fish]

I would guess that concerns about the upcoming review of power prices may be worrying some.
https://www.radionz.co.nz/news/national/349915/nz-electricity-industry-to-be-reviewed

Thanks for that insight RTM.
I dont imagine that could be that could real reason as it was a pre-election promise and it is looking at the whole industry.The article gives further details.
As Couta says it looks to me as if there is one big seller.
Just as vector have done with NZ windfarms a big seller can mop up all the buys-but when done on the market- it is down to a certain limit-once the seller is finished usually the sp recovers.
I dont really care that much about the sp in the short-term as I a not intending to trade and I couldnt be happier at the price I paid and cum dividend it is even better
This is one of my top picks for my retirement.
If you read the radionz.co.nz article it is clear that mercury is doing what the government envisages-not surprising as they are the biggest shareholder.
I did sell down some meridian to help me make this purchase-Jantar has posted that Meridian are spilling as a burnt out electric generator

[Aaron]

I would guess that concerns about the upcoming review of power prices may be worrying some.
https://www.radionz.co.nz/news/national/349915/nz-electricity-industry-to-be-reviewed

Maybe the review combined with the possibility that the interest rate cycle may have finally turned and infrastructure assets are seen as a bit like bonds with a steady (hopefully inflation protected) cashflow. As interest rates rise property and infrastructure company's value should fall as capitalisation rates increase. But at the current yields compared to just about any thing else around power companies seem like a pretty good yield to me.

[couta1]

Stock has tanked the day before it goes Ex a 6c divvy, has been behaving strangely for a while now, after the strong result, maybe it's coming out of the MSCI index?

[fish]

It just seems crazy and as long as you buy with the intention of a long-term hold-as I always do-does the sp today really matter?
I bought a lot just a week ago when they went down to315.5.
If they go up at anytime the value of my holding gets out of the proportion I want in this stock so I sell a few-the more they go up the more I sell and vv if they go down.
Their lakes are full and the money keeps rolling in so when the sp islow I tell myself it doesnt matter.When the price is a bargain I buy

[couta1]

It just seems crazy and as long as you buy with the intention of a long-term hold-as I always do-does the sp today really matter?
I bought a lot just a week ago when they went down to315.5.
If they go up at anytime the value of my holding gets out of the proportion I want in this stock so I sell a few-the more they go up the more I sell and vv if they go down.
Their lakes are full and the money keeps rolling in so when the sp islow I tell myself it doesnt matter.When the price is a bargain I buy Agree for sure, just trying to find a reason for the behaviour, but of course there doesn't always have to be one.

[RTM]

Stock has tanked the day before it goes Ex a 6c divvy, has been behaving strangely for a while now, after the strong result, maybe it's coming out of the MSCI index?

Tanked ? Really ? Down 3c at end of day and had run up to 332 from high teens last in the last week or so. I wanted to buy some more to, but unlike Fish was unable to buy them at the price I was prepared to pay. From memory, Craigs were not overly enthusiastic.

[couta1]

Tanked ? Really ? Down 3c at end of day and had run up to 332 from high teens last in the last week or so. I wanted to buy some more to, but unlike Fish was unable to buy them at the price I was prepared to pay. From memory, Craigs were not overly enthusiastic. Was at $3.22 when I wrote that, regardless it's still trading significantly below fair value, which I reckon is $3.40 plus, so $3.27 before shedding 6c isn't that flash.

[Snoopy]

fish quoted on the CEN thread


-------

"Recent Morningstar analysis"

"Narrow-moat-rated Mercury NZ posted record first-half EBITDA of NZD 301 million, up 11% on the same period last year. The firm benefited from ideal weather conditions, with plenty of rain in the North Island boosting its hydroelectric production, while low South Island rain kept the wholesale price high. Full-year guidance for EBITDA of NZD 530 million is unchanged, and we think the firm can do a little better. We make minor adjustments to our earnings forecasts but maintain our NZD 3.60 fair value estimate. We also adjust our historic and forecast dividend numbers to now include special dividends as well as ordinary dividends."

--------

I hope you don't mind me replying on the Mercury thread fish, as it is of interest to Mercury shareholders rather than Contact shareholders.

The bit in italics I don't agree with at all. A 'special dividend' is called a 'special dividend' because it is paid taking into account special circumstances. The latest special dividend IIRC was paid because of windfall profits from the recent bumper flow into the Taupo catchment combined with high wholesale prices. Last year I think it was because of a windfall cashflow after selling down an overweight position in carbon credits. The year before that I can't remember, was it surplus property sales? The reason these were 'special dividends' is because they arose out of unusual circumstances that are unlikely to be repeated. Yes we have had special dividends three years in a row. But to assume they will continue, just because we got lucky three times seems manifestly wrong. If these new dividends were expected to be payable year after year, then Mercury management would just increase the ordinary dividend. The fact that management did not do this, and keeps classifying 'special dividend's as 'special' tells me that Morningstar's updated valuation is wrong.

IMO the correct way to value a special dividend is to add the value of that dividend to the share price as a one off event.

The other reason for the upgrade:

"The firm benefited from ideal weather conditions," <snip> "we think the firm can do a little better."

is almost as ridiculous. First they acknowledge that MCY benefitted from ideal weather, and end the same paragraph saying that "Mercury can do a little better". Well guess what? Mercury has no control over weather conditions. They may well have another bumper year next year in the Taupo catchment. But this is largely unforecastable and certainly nothing to do with the amount of water that flowed into Taupo over recent months. I don't think that Mercury Energy is worth anything like $3.60. Whoever wrote that Morningstar analysis should hang their head in shame!

SNOOPY

[fish]

Snoopy a special dividend that has happened for the last 3 years and almost certainly will happen this year cannot be viewed as a one off.
Cen lost a lot of customers last month(some will be going to mercury) and sold much less electricity.
Its not just a matter of changing hydrology-although the clutha catchment is much lower than you might think.
CEN will benefit from higher prices but I dont like the loss of customers.
Maybe the fact that they use fossil fuels has become a factor.
Mercury are certainly promoting the clean ,green image and maybe you should consider future trends in energy in making your valuation .
Nobody really knows but we all have our own feelings about global warming etc-look at what Norway and others are doing.
Hydro close to Auckland imho is very valuable-higher prices and less line losses.

[Snoopy]

Snoopy a special dividend that has happened for the last 3 years and almost certainly will happen this year cannot be viewed as a one off.


Fish, you see 'a special dividend' for three years. I see three years with a different special dividend declared each year because of three different sets of special circumstances. MCY may well declare a special dividend next year. But I don't think you can predict that as a certainty, because this is what happened in the last three years and therefore you should not assume that as a certainty in your valuation.

Management of utility type companies hate cutting dividends. The best way not to cut 'ordinary dividends' is to declare the odd 'special dividend' so that if the next year is not so favourable you can cut the special dividend, yet still claim an unbroken record of flat to rising dividends because the 'ordinary dividend' has not been cut. The fact that a dividend declared is 'special' is enough reason in itself to believe that you should not rely on it in the future to be repeated. I am not saying there won't be a special dividend next year. I just don't think you should rely on that assumption for valuation purposes.



Hydro close to Auckland imho is very valuable-higher prices and less line losses.


Looking back on my 'one evening' sample from last week, from my check of the the EMI website at both Huntly

https://www.emi.ea.govt.nz/Wholesale/Reports/W_P_C?DateFrom=20180308&DateTo=20180314&RegionCode=HLY0331&RegionType=POC&TimeScale=TP&WeightedBy=NODES&_si=p|0,v|3

and Benmore

https://www.emi.ea.govt.nz/Wholesale/Reports/W_P_C?DateFrom=20180308&DateTo=20180314&RegionCode=BEN2201&RegionType=POC&TimeScale=TP&WeightedBy=NODES&_si=p|0,v|3

to get clarification of that. Let's look at an assortment of dates and times over the last week.



Benmore Node 2201Huntly Node 2201Difference%ge Difference


Wholesale Price 5pm 14-03-2018$52.34/MWh$64.26/MWh+$11.92/MWh+22.8%


Wholesale Price 6pm 14-03-2018$49.36/MWh$61.92/MWh+$12.56/MWh+25.4%


Wholesale Price 7pm 14-03-2018$23.78/MWh$28.77/MWh+$4.99/MWh+21.0%


Wholesale Price 8pm 14-03-2018$71.20/MWh$83.34/MWh+$12.14/MWh+21.0%


Wholesale Price 9pm 14-03-2018$71.48/MWh$81.96/MWh+$10.48/MWh+17.0%


Wholesale Price 10pm 14-03-2018$41.73/MWh$46.22/MWh+$4.49/MWh+10.8%


Wholesale Price 11pm 14-03-2018$69.63/MWh$73.51/MWh+$3.88/MWh+5.6%



Last year Mercury generated 7,000GWh of flexible hydro and base load geothermal generation (source p3 of November 2017 Investor Presentation). If the cost of doing this was around $12/MWh lower than if that same energy had been bought from competitors in the South Island and imported via the cook strait cable, we can work out the annual saving to Mercury.

7,000 GWh = 7,000,000 MWh

7,000,000 MWh x $12/MWh = $84m per year (equivalent to an after tax profit increase of 0.72 x $84m = $60m)

Given I have previously calculated Mercury's normalised net profit after tax for FY2017 as $168m, that $60m boost because of a reduction in distribution costs is a huge boost for Mercury shareholders. But this boost is already included in Mercury's results, and should not be double counted by paying again for such a strategic advantage from an investors perspective.

SNOOPY

[Marilyn Munroe]

Snoopy, my recolection is that Transpower cherges are based on all grid exiit points being charged equally.

Thus someone who can see the Benmore Dam from their porch is charged the same by Transpower as someone who can see the Cape Reinga Lighthouse from their porch.

Boop boop de do
Marilyn

Dont foget that local line company charges asre also includred inthe line charge a consumer pays.

[fish]

Electricity is sold at different prices at these exit points

e g atm invercargill is $54 and Bream Bay is $64.
Lets say the cost of generation is $30.
Mercury sells power at bream bay(northland)=100% profit
Contact sells SI hydro to Bream Bay and they are going to have significant line losses which they have to absorb so profit maybe 10% less(jantar could tell us the exact figure).
in the future i can see with population growth this discrepancy growing.
Furthermore i understand there is a review of transpower charging-to consider user pays?-if this happens transpower charges may decrease for mercury(close to auckland) and increase for SI hydro
We really need Jantar to give one of his expert posts on this matter

[Snoopy]

Snoopy, my recolection is that Transpower cherges are based on all grid exiit points being charged equally.

Thus someone who can see the Benmore Dam from their porch is charged the same by Transpower as someone who can see the Cape Reinga Lighthouse from their porch.

Boop boop de do
Marilyn

Don't forget that local line company charges are also included in the line charge a consumer pays.

Marilyn, I was speaking from the perspective of the power retail company, in this case Mercury, paying the wholesale price of the power they then on sell to consumers. This all happens behind the scenes and is opaque to the end line consumer. The end line energy consumer, unless you are a customer of Flick Electric, is not concerned with the wholesale energy price, because all of that is managed by the retailer. The retailer can change what the pay for wholesale energy by using:

1/ the ASX NZ power futures market and/or
2/ choosing between cranking up their own power generation (if the retailer is also a generator) verses buying what they need from the wholesale spot power market and/or
3/ using the pre-signed inter generator agreements that allows them to purchase power from a competitor in certain circumstances at a pre-determined price and/or
4/ using a combination of 1,2 and 3 to game the market and manipulate power prices in periods of high power demand to their own advantage.

Gulp, did I really write out point 4/? Perhaps I had better say that 'obviously' no reputable gentailer would actually do that, even if it was in their power to do so ;-).

All of the above is in relation to energy pricing. Transpower is the outfit that shifts this energy from one grid node point to another. If this charge were the same for all wholesale customers, then surely there would be no incentive to buy more expensive Huntly node power over cheaper Benmore node power? IOW would not the wholesale market immediately equalize if the Transpower charges were the same for all power wholesalers? In theory there should be off peak rates for the transmission of power as well as the energy cost. In practice I do not know if Transpower does this.

To go back to what I think was your original point though, from a retail perspective there doesn't seem to be too much difference in the price that Mercury charges its Auckland or Christchurch customers in retail cents per kWh. From that perspective I think your point is likely correct. A retail 'Someone' who can see the Benmore Dam from their porch has a similar Transpower wholesale component passed on to them in their power bill as 'someone' who can see the Cape Reinga Lighthouse

SNOOPY

[fish]

maybe I am missing something.I have just checked atm power prices-bream bay $125 ,invercargill $105 approx.
Power companies- lose power in line losses.
Hence mercury would make a lot more profit selling electricity to say whangarei,North than contact selling anywhere in the country

[Snoopy]

maybe I am missing something.I have just checked atm power prices-bream bay $125 ,invercargill $105 approx.
Power companies- lose power in line losses.
Hence mercury would make a lot more profit selling electricity to say Whangarei,North than contact selling anywhere in the country

Updated as I write on the electricity info dashboard:

https://www1.electricityinfo.co.nz/

Bream Bay (northernmost node) $104.21
Invercargill (southernmost node) $77.98

Could you be missing that the spot price represents the marginal price of incremental power that wholesalers must pay to 'top up' to meet incremental retail demand? It does not represent the wholesale cost of generation for power gentailers already set aside to supply their base load demand? And it does not represent the pre-contracted retail price purchase rate already guaranteed to retail customers?

To sell to those northernmost customers, Mercury would have to pay the Transpower costs and local line company costs of getting their own generated power up there. And presumably these costs are well known and taken into account by those bidding on the spot market. That means the difference in node price is largely reflects the difference in line charges. As a result I would expect Mercury to receive the same profit margin for whatever electricity they chose to sell no matter what part of the country they chose to sell it to (assuming the Cook Strait cable is fully functional)?

SNOOPY

[Snoopy]

Last year Mercury generated 7,000GWh of flexible hydro and base load geothermal generation (source p3 of November 2017 Investor Presentation). If the cost of doing this was around $12/MWh lower than if that same energy had been bought from competitors in the South Island and imported via the cook strait cable, we can work out the annual saving to Mercury.

7,000 GWh = 7,000,000 MWh

7,000,000 MWh x $12/MWh = $84m per year (equivalent to an after tax profit increase of 0.72 x $84m = $60m)

Given I have previously calculated Mercury's normalised net profit after tax for FY2017 as $168m, that $60m boost because of a reduction in distribution costs is a huge boost for Mercury shareholders. But this boost is already included in Mercury's results, and should not be double counted by paying again for such a strategic advantage from an investors perspective.


I am not sure I put the above post fully in context, and that may have been misleading.

What I should have said was the theoretical maximum benefit of Mercury feeding power into the grid near Auckland could be equivalent to $60m NPAT, as an alternative to bringing equivalent spot power north via the Cook Strait cable (that purchase being made at the Benmore node). This $60m is the maximum theoretical benefit that could occur if all of Mercury's geothermal and Waitaki River generation were to shut down and Mercury had to buy all that power on the spot market to meet consumer demand. Of course selling all that power into the future to Mercury customers and then shutting down all Mercury's top of the North Island generating capacity is an extremely unlikely series of events. So the real 'saving' in having Mercury's power stations sited so strategically would be much less than $60m per year , because energy pre-contracted at a fixed price based on normalised supply and demand forecasts would have to come out of the equation. Take that out and Mercury's real strategic advantage of owning optimally sited power stations might only be $6m. Worth having, but not super significant.

Also I am unsure of the Transpower charge that Mercury would face to get the power to the North Island where it is needed. You would have to adjust for that expense by taking it off the $60m theoretical profit component.

SNOOPY

[fish]

Much as I respect and appreciate your posts I do not believe the conclusions you arrive from past statistics are correct.
Suggesting the strategic advantage of optimal sited power stations is only $6 million is but one example.
Should you not for instance take account of line losses-that is power lost in heat energy transmitting power distances-the longer the distance the more power is lost.Its a long way from low south Island to top of North Island and cook strait another potential problem
There is much more including population growth in the north compared to the south.
Then political/environmental stuff-Jacinda believes future is reneweables and mercury can sell the excess hydro they are getting in the current(and possible future climate change pattern of rainfall.)
Mercury is a 100% green and they are increasing customer numbers.
Morningstar have now changed their recommendation on mercury to accumulate so clearly I am not the only one thinking the future is rosy for mercury,

[Snoopy]

Much as I respect and appreciate your posts I do not believe the conclusions you arrive from past statistics are correct.


You could be right.



Suggesting the strategic advantage of optimal sited power stations is only $6 million is but one example.


The $6m figure was based on the extra $60m Mercury might be up for should they decide to stop all power generation in the upper North Island. That scenario isn't going to happen. But I figured in a bad year, the market might be down 10% on the energy they thought they had. So this is the kind of extra expense Mercury might save, if they did not have to buy that energy via the Cook Strait cable. 10% over a full year is quite a lot when most of these shortages are seasonal. So my estimated $6m benefit could be an overestimation?



Should you not for instance take account of line losses-that is power lost in heat energy transmitting power distances-the longer the distance the more power is lost.Its a long way from low south Island to top of North Island and cook strait another potential problem


Good point. I found this reference from 2005, when the upgrade to the Cook Strait cable was still being debated.

https://www.google.co.nz/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0ahUKEwilis7joIHaAhXEyLwKHS1sAdIQFggnMAA&url=https%3A%2F%2Fwww.siemens.com%2Fpress%2Fpool%2 Fde%2Fevents%2F2012%2Fenergy%2F2012-07-wismar%2Ffactsheet-hvdc-e.pdf&usg=AOvVaw26C_l10voSxKxuJmc3Plx3

From section 5.1.4:

"The transmission losses for a monopole are twice that of a bipole at an equivalent operating power. For example, the approximate line losses for a +/-350 kV bipole
operating as 700 MW balanced would be 25 MW (~3.5 %). By contrast the approximate line losses for a 350 kV, 700 MW monopole using earth return would be
50 MW (~7 %). Similarly, for a monopolar metallic return mode, the line losses would be approximately 14 %."

So it looks like the Cook Strait cable losses are around 3.5% (one way). Since the HVDC cable is specifically designed to minimse losses, total losses from the rest of the Transpower journey are likely to be more than double that figure.



There is much more including population growth in the north compared to the south.


If you look back at my Mercury valuation, you will see that I have already valued in an additional 100MW geothermal power station that Mercury could build at any time without raising new capital. Effectively I am already valuing Mercury sales as 10% higher than they are now in my current valuation.



Then political/environmental stuff-Jacinda believes future is reneweables and mercury can sell the excess hydro they are getting in the current(and possible future climate change pattern of rainfall.)


If the future weather patterns mean a drier south and a wetter north, particularly the Taupo catchment, then I agree. However, just before this year's deluge, Mercury had three of its worst years on record for generating hydro. I don't believe you should extrapolate the favourable conditions of this year to all future years for valuation purposes.



Mercury is a 100% green and they are increasing customer numbers.


I still think this is because Mercury is able to generate the extra power to sell to these new customers. If generation conditions became less favourable (as it has done for Contact this year) just watch those customer numbers drop back again!



Morningstar have now changed their recommendation on mercury to accumulate so clearly I am not the only one thinking the future is rosy for mercury,


I am not suggesting the future of Mercury isn't rosy. I own MCY shares , held since the government sell down, and see no reason to sell my own shareholding down just yet. All I am saying is I think 'the rosy picture' is already built into the MCY share price. So I won't be accumulating any more at these levels.

SNOOPY

[fish]

Thank you Snoopy for that reply.
I wonder if you have read the Half-year report released at the end of Feb.
So many factors more than hydrological advantages paint a rosy future in the opinion of the company-for instance interest rate hedges start falling off at the end of this year to give an annual 6.66% increase in profit.This looks to be a certainty.
They have been refurbishing hydro,redrilling geothermal below budget and making the whole operation more efficient.
They are inline with government policy and have no fear of the electricity review due next year(unlike genesis)

[Snoopy]

The figures I present below are from FY2009 onwards. This is the first year after the GFC hit, and power usage growth changed from its historical pattern.

All base figures are taken from the 'Statement of Change in Equity' Group figure for the appropriate year.



Revaluation Hydro & Thermal Assets ($m)Revaluation Other Generation Assets ($m)Total Revaluation ($m)Pre Tax Revaluation ($m)Pre Tax New Capital Per Share (c)


20090170.987170.98724417.4


2010200.90060.250261.15037326.6


2011153.300135.275288.57541229.4


2012119.5202.880122.24017012.1


201330.9602657795.6


201442529402.9


Total92994.0



Note:

1/ eps figures assume 1,400m shares on issue throughout the whole comparative period.
2/ 30% tax rate assumed up until FY2012. 28% tax rate assumed from FY2012 forwards.

That first total figure represents the new 'thin air' capital that has appeared on the MRP balance sheet from 2009 to 2014 inclusive. $929m is a lot of money, perhaps even enough to fund a new power station, without going back to shareholders for more capital? It would certainly go a way towards that!

The last total figure represents the equivalent extra eps in a gross dividend form. This is the amount of extra gross dividend that could have been paid to shareholders, should the MRP board have decided not to reinvest their 'thin air' capital. I do note the amount of 'thin air' capital has been decreasing, year on year. But perhaps this is not a problem, given MRP have declared they are not planning on building any more new power stations in the forseeable future? Furthermore when the need for more electricity generation does become apparent, value will once again arise out of thin air based on increasing energy use projections. So MRP may never need to raise capital again to build new power stations!

SNOOPY

Time to update my table



Reval. Hydro & Thermal Assets ($m)Reval. Other Generation Assets ($m)Total Revaluation ($m)Post tax New Capital Per Share ($m)Pre Tax Revaluation ($m)Pre Tax New Capital Per Share (c)


20090170.987170.98712.224417.4


2010200.90060.250261.15018.737326.6


2011153.300135.275288.57520.641229.4


2012119.5202.880122.2408.717012.1


201330.96026574.9795.6


2014425292.1402.9


2015??35625.549735.5


2016??=79+217.11379.8


2017??382.7523.7


Total102.2


less Special Dividends Declared (per share)-10.4


Residual Thin Air capital91.8



Note:

1/ Capital per share figures assume 1,400m shares on issue throughout the whole comparative period.
2/ 30% tax rate assumed up until FY2012. 28% tax rate assumed from FY2012 forwards.
3/ I notice that after FY2014 the break down in the annual report between 'Hydro & Thermal Assets' and 'Other Generation Assets' has ceased.
4/ In FY2016 I have added back the tax effect of the Southdown write down, to get the residual tax effect of the remaining generation assets.
5/ Since I am counting 'thin air capital' as an extra return over and above dividends, I feel it is appropriate to look at the 'post tax' effect of the new thin air capital. That aligns more closely with the post tax effect of dividends. Dividends 'post tax' are what shareholders get in their bank account.
6/ I have removed the special dividends declared over time , as these may been seen as a method of paying back excess 'thin air capital'.
7/ For the calculation of the 10.4cps special dividends paid, see my post 1003 on this thread.

91.8cps x 1,400m shares = $1,285m of retained 'hidden value' 'Thin air capital' over the years. Of course not all of this still exists because it has been used to build both the Nga Awa Purua (FY2010) and Ngatimariki (FY2013) power stations over the years. These power stations were built using a combination of new equity (the infamous 'thin air capital') and borrowings. We should also bear in mind that some of this thin air capital may be needed to retain the credit rating of the company. Put simply, the more capital the company have, the less borrowings they need. So some unspent thin air capital could contribute to a better credit rating for the company.

SNOOPY

[Snoopy]

A couple of interesting statistics from FY2012, a year without an unusual river inflow. Mighty River Power had a 51.4% capacity utilisation from their hydro stations and a very impressive 94% capacity utilisation from their geothermal stations. This gives an idea of the relative importance of the two kinds of generation in relation to total energy generated by MRP. Since the commissioning of the latest geothermal station (Ngatamariki) in 2013/2014, MRP have enough revalued capital on the books to build yet another 'free' geothermal power station if they so choose. Let's say this potential new station could deliver 100MW. By how much would that increase the base generating capacity of MRPs portfolio?

1044MW Hydro (existing) x 0.514 = 537MW (effective)
463MW Geothermal (existing) x 0.940 = 435MW (effective)
100MW Geothermal (new) x 0.940 = 94MW (effective)

Hence the effective new capacity increase is:

94 / (537+435) = 10%


I want to roll back behind an old post and talk about the topic of 'effective' power generating capacity. Why is this so important for investors? Because the new power generating capacity (where growth will eventually come from) must build on the effective power generating base (what power is generated in a 'normal' year) as opposed to what power could be generated if all existing power stations worked flat out. It is the incremental return on the effective effective power generating base that determines the growth that investors will get going forwards.

The example I wish to use is Mercury's recently decommissioned Southdown Gas Turbine Station. It was Mercury's only gas fired station, so back in FY2012 we can be sure that all of Mercury's gas fired generation came from that station alone.

On p51 of the float prospectus, this is what Mercury has to say about it:

"The 175MW Southdown Power station is capable of producing up to 1,400GWh of of electricity per year ."

175MW is the power of the station, but electricity is an 1,400GWh is an 'energy' output. Energy is the result of running a power station over time.

Q/ How many hours in a day? A/ 24 hours
Q/ How many days in a year? A/ 365
Q/ How many hours in a year A/ 24 x 365
Q/ How many MW in a GW? A/ 1000

So the theoretical maximum amount of power that Southdown could produce was:

175MW x (24 x 365) hours = 1,542,000 MWh = 1,542 GWh

This is greater than the maximum generating capacity of 1,400GWh that Mercury claim. So what's going on? I suspect that the Southdown plant had annual servicing requirements that meant it was not available 24/7 as I had assumed.

(1542-1400) /1542 x 365 = an minimum annual downtime for Southdown of 33 days

Does that explanation sound plausible?

I am going to keep using my own calculated potential figure of 1542GWh, because at least I know for sure how that was derived. And as long as I am consistent with my treatment of this data point going forwards, the figure I choose will not affect comparative calculations going forwards based on a ratio using this figure.

We were told that the actual energy generated by Southdown over the period was 589GWh. So this means the factor we need to multiply the 'maximum generating capacity' to get an 'effective generating capacity' is:

589 GWh / 1542 GWh = 0.382

Unfortunately that figure isn't likely to be consistent for other gas fired power stations. But as far as Mercury is concerned, the figure is moot going into the future anyway. 'Southdown' is now 'Shutdown'. What I need to do now, as a CEN investor, is to figure out what the equivalent figure would be for Contact's gas fired power stations.


SNOOPY

[Snoopy]

I am going a bit left field with this analysis. The following are the one liners (sometimes with other lines tacked on for clarification) on how our Chair Joan Withers sees the business. All quotes are taken from the respective annual reports. I have mined no new information. Yet I think reading a snapshot view of Mercury through the years does add value.

FY2013: "We again demonstrated that in a tough market (Waikato drought), we have the ability to deliver both growth in market share by adding value for our customers and operating performance and financial results above IPO forecasts."

FY2014: "Operating earnings were up and increased 29% year on year, primarily as a result of the additional generation from the Ngatamariki (geothermal) plant and our success in lowering the company's operating costs. The improvement in net profit primarily reflects one off costs and non-cash impacts, largely relating to impairments from taking control of international geothermal investments in early 2013. In our second successive year of weak inflows into the Waikato river catchment, hydro conditions were the lowest and most challenging in the company's history."

FY2015: "In a year like this - of very low North Island rainfall and record low hydro generation, our earnings have held up extremely well. Last year we achieved a huge lift in operating earnings following the commissioning of the Ngatamariki geothermal station. This year operating earnings were only down 5% on that result."

FY2016: "Mercury is reporting a 2.3% lift in operating earnings, reflecting steady customer sales in a highly competitive market and the strength of our renewable generation portfolio."

FY2017: "Mercury achieved a 6.1% lift in operating earnings largely reflecting strong inflows across the Waikato catchment in the second half of the financial year."

What I get from is is as follows:

1/ Forecasting performance in an 'average year' may be difficult if the average is made up of extreme years (worst Waikato droughts and then floods) that are "anything but average".
2/ The trend in improving underlying net profit is closely connected to the trend in more favorable weather conditions for the Waikato catchment. Weather conditions can not be relied upon to continually improve.


I have been looking for a 'normal year' as a comparative yardstick. I am interested in looking at the individual performances of Mercury's individual Hydro and Geothermal power stations. I have settled on FY2016 as the one that most likely approximates normalized conditions at Mercury. I do find it notable that as per the Chair's comments, only one of the five years reported on since listing has had anywhere near normal inflows into the Waikato catchment! If four out of the five years reported on are abnormal, it makes you question just what normal means in this context?

My next step was to look in the annual report for individual power station generation records, much as Contact Energy provides. Guess what? There is no information like that listed in the Mercury report. Some of the presentations had consolidated generation figures from combined hydro and combined geothermal power stations as a group. But nothing on the individual stations. Nothing like what was so carefully detailed on p48 of the (then) Mighty River prospectus. Does anyone know if the information on individual stations as provided in the prospectus has ever been repeated by Mercury? My research has so far drawn a blank - very surprising when the equivalent information from Contact Energy was so easily found!

SNOOPY

[fish]

If four out of the five years reported on are abnormal, it makes you question just what normal means in this context?

Abnormal is the wrong term to use.
Normal has a wide range.
Best to say below average or above average then we all know what it means.

[Snoopy]

Snoopy wrote
"If four out of the five years reported on are abnormal, it makes you question just what normal means in this context?"

Abnormal is the wrong term to use.
Normal has a wide range.
Best to say below average or above average then we all know what it means.

To give some more context here.

If Mercury has enough equity to build an extra power station at will. with no recourse to more funds from shareholders, then that is really good. It is good because although they can build a new power station at any time, they will only build it when demand expands to the extent it becomes profitable. The worth of this new power station to shareholders depends on the incremental gain in electricity sales they will make over the rest of the already existing power station portfolio.

I am assuming the new power station they will build will be geothermal because:

1/ Geothermal as a base load allows more hydro power to be created at Mercury's discretion, when wholesale power prices are high.
2/ Geothermal is more reliable than wind.

However, if we have a low inflow into the Taupo catchment, this means less extra energy is available to be generated. Perversely though, it also means that this as yet unbuilt power station is worth relatively more, because the incremental generation it provides comes off a lower total base.

Conversely when we have a lot of hydro power available nationally, the incremental value of this new power station would be less, because incremental hydro power is cheaper to generate than incremental geothermal power.

To summarize, the value of a new geothermal power station will go up and down, depending on the ease (or not) of generating alternative power at other power stations. But to see whether a new power station is profitable or not to build, well, you can't get that answer by looking at extreme weather event years.

SNOOPY

[horus1]

I would feel that solar is cheaper than geothermal.

[Snoopy]

I would feel that solar is cheaper than geothermal.


I am talking about a Mercury wholesale portfolio perspective Horus. The real value to Mercury in having more geothermal 'base load' is that it frees up the Mercury Hydro dams that were predominantly base load stations to become 'peaker generators.' IOW when power prices are high it is easy to crank up a hydro station quickly in a way that isn't possible with geothermal, and thus reap 'peak profits'.

You may be right that from an installed cost perspective solar is now cheaper. But peak solar generation in NZ does not meet peak power consumption. So to get solar system to work on a wholesale portfolio basis, you must couple your solar installation with battery storage. While solar panels themselves can work for decades, the concomitant battery storage required must be amortized over a much shorter period and cash set aside to buy a replacement. So solar is not as cheap as it looks.

Personally I have long been concerned at the timing mismatch between peak generation and peak consumption in NZ. I was considering building a small vertical axis wind turbine at home to generate some power in the depths of winter when I needed it and couple that to a battery. But more recently I am thinking of not building any generation myself, but installing an energy storage battery only. Then I could join an outfit like Flick and buy wholesale power when it is cheap, without the expense of doing any generation at home. I see Contact Energy was the last gentailer to greatly reduce the price paid for distributed power.

https://www.stuff.co.nz/business/102647394/contact-removes-solar-price-perk-for-legacy-customers

This must be gutting for those consumers who invested in their own distributed generation at home, on the understanding they would be paid twice what the big power companies are now offering!

What do you think about leaving the machinations of generation to the big boys, and making your savings by just playing the wholesale market?

SNOOPY

[horus1]

I have been on Flick for some years . I believe that the benefits of solar and batteries come home when you go off grid and with reducing solar and battery costs this is happening,first in new houses , then it will be in remote locations and when fuel cells arrive in other places.The total electricity industry will have to take write downs as in bertram's article in the Dominion today. I agree with his sentiments.The problem for domestic customers is the price they are charged is excessive that is why Flick saves me 15 %. But you have to be able to take the risks and many cannot afford that. Why should I subsidise Tiwai and commercial players.
I have 6.5KW of solar and it is on the spot market thru Flick, .It pays for itself and I will install more.

[fish]

I have been on Flick for some years . I believe that the benefits of solar and batteries come home when you go off grid and with reducing solar and battery costs this is happening,first in new houses , then it will be in remote locations and when fuel cells arrive in other places.The total electricity industry will have to take write downs as in bertram's article in the Dominion today. I agree with his sentiments.The problem for domestic customers is the price they are charged is excessive that is why Flick saves me 15 %. But you have to be able to take the risks and many cannot afford that. Why should I subsidise Tiwai and commercial players.
I have 6.5KW of solar and it is on the spot market thru Flick, .It pays for itself and I will install more.

Maybe it might be a good idea to re-evaluate the situation for this winter.Power prices rather high at the moment(over $900 in NI)and with short wet days you may not be getting much solar

[horus1]

The lakes are over 100% full . No need for high prices except the greedy gen/retailers and with review coming there may be some common sense. Flick has saved me $900 . Wouldnt touch another retailer .

[RTM]

The lakes are over 100% full . No need for high prices except the greedy gen/retailers and with review coming there may be some common sense. Flick has saved me $900 . Wouldnt touch another retailer .

Took a look at the Trust Power presentation yesterday.....
http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/TPW/316608/277533.pdf

"Electricity segment remains highly competitive with consolidation and failures likely "

I wonder who they are thinking about in terms of failures ?

Also.....
"Following the sale of GSP and the takeover of KCE, Trustpower will be well positioned to participate in further industry consolidation"

Clearly they are seeing more changes in the sector.
Disc: Interested as holding shares in all the Gentailers. Probably overweight overall.

[Jantar]

The lakes are over 100% full . No need for high prices except the greedy gen/retailers and with review coming there may be some common sense. Flick has saved me $900 . Wouldnt touch another retailer . This morning all available hydro was flat out except for a small margin to cover reserve. Whirinaki was even called on, so who pays for Whirinaki if prices are not high?

This afternoon, demand has dropped, thermal plant has been backed off, and look: Prices are low.

[horus1]

So i'm saving again. Why does everyone get the top price and not there bid price .? That would seem to make more sense.

[fish]

So i'm saving again. Why does everyone get the top price and not there bid price .? That would seem to make more sense.

Its the rules of this market.
Prices are getting very high at periods of peak demand and as Jantar says Whirinaki is being run to meet this demand-therefore you are paying cost plus to meet the price of running diesel generation.
The periods of peak demand do not correspond with solar generation so I have to wonder if you are going to have a cold winter.

[horus1]

I am with flick so I will be 15% cheaper than the gen/retailers. I use it when it is cheap at night usually after 9pm. That is not an answer that that is the rules of the market. It does not apply in a number of jurisdictions overseas.

[value_investor]

An earnings guidance upgrade and a fall in price?

Interesting movement on this one. Perhaps someone is offloading their shares..

[couta1]

An earnings guidance upgrade and a fall in price?

Interesting movement on this one. Perhaps someone is offloading their shares.. Possible MSCI index removal coming up for the stock.

[Robomo]

Mercury announced today that it will begin an on-market share buyback of up to 20 million shares. They will not be cancelled but will be held by Mercury as treasury stock.

So, what happens to the dividends earned by these shares (@13.8c final+special - 2017 div.) which is likely to be about $2.76 million? Will they be retained as 'earnings' or redistributed to external shareholders or not 'paid' at all or ....?

Could some savvy Accountant or Management guru enlighten me on this and what the effect will be on the small retail shareholder (i.e. like me and thousands of others holding a handful of shares).

[RTM]

Mercury announced today that it will begin an on-market share buyback of up to 20 million shares. They will not be cancelled but will be held by Mercury as treasury stock.

So, what happens to the dividends earned by these shares (@13.8c final+special - 2017 div.) which is likely to be about $2.76 million? Will they be retained as 'earnings' or redistributed to external shareholders or not 'paid' at all or ....?

Could some savvy Accountant or Management guru enlighten me on this and what the effect will be on the small retail shareholder (i.e. like me and thousands of others holding a handful of shares).

Good post...I have the same questions as well ! How does this buyback, where the shares are not cancelled, affect things ?

[777]

My take is that if not cancelled then no affect on the other shareholders as there is still the same number of shares on issue. I assume that they get the same dividend. Having them held as treasury stock enables them to be used for DRP's or performance issues without having to issue more shares.

Any affect would be minor as it is less than half a percent of the total shares on issue.

[Scrunch]

My take mirrors 777 above. It makes it administratively easier to sell or provide someone with shares of this is required at some stage in the future. As they are still on issue there's may be a cash circle whereby Mercury pays itself a dividend.

[fish]

Mercury announced today that it will begin an on-market share buyback of up to 20 million shares. They will not be cancelled but will be held by Mercury as treasury stock.

So, what happens to the dividends earned by these shares (@13.8c final+special - 2017 div.) which is likely to be about $2.76 million? Will they be retained as 'earnings' or redistributed to external shareholders or not 'paid' at all or ....?

Could some savvy Accountant or Management guru enlighten me on this and what the effect will be on the small retail shareholder (i.e. like me and thousands of others holding a handful of shares).

My feeling is that we should see a rise in the sp-after weeks of mcy being sold off at close today we saw a bit of buying pressure at close.
I bought a lot as the sp fell so have a big interest in how much the sp will rise in the next 8 weeks.
My speculation is somewhere between 3.28 and 3.48.
Would be very interested in other opinions

[Snoopy]

My take is that if not cancelled then no affect on the other shareholders as there is still the same number of shares on issue. I assume that they get the same dividend. Having them held as treasury stock enables them to be used for DRP's or performance issues without having to issue more shares.

Any affect would be minor as it is less than half a percent of the total shares on issue.


My take mirrors 777 above. It makes it administratively easier to sell or provide someone with shares of this is required at some stage in the future. As they are still on issue there's may be a cash circle whereby Mercury pays itself a dividend.

The 8th May announcement shows the buyback has started. 130,857 shares bought back. This brings the total treasury stock up to 22,527,129, out of a total no. of shares on issue of 1,400,012,597. Curiously that 1,400,012,597 shares on issue is the same number listed on p51 of AR2017 as the total number of shares back then. There is no talk of the number of shares being reduced in the buyback, which means there is a strong possibility that these 'bought back' shares will be reissued later. That AR2017 'total number of shares on issue' must include the previously bought treasury shares.

So it seems there is indeed a cash circle, with Mercury paying themselves a dividends on all Treasury shares held. As to where we can find that 'dividend to self' in the accounts... Could it all be grouped with 'Other Revenue' as disclosed under note 4?

SNOOPY

[777]

They don't need to do the dividend thing as the cheque written will be balanced by the cheque deposited.

[Robomo]

Mercury announced today that it will begin an on-market share buyback of up to 20 million shares. They will not be cancelled but will be held by Mercury as treasury stock.

So, what happens to the dividends earned by these shares (@13.8c final+special - 2017 div.) which is likely to be about $2.76 million? Will they be retained as 'earnings' or redistributed to external shareholders or not 'paid' at all or ....?

Could some savvy Accountant or Management guru enlighten me on this and what the effect will be on the small retail shareholder (i.e. like me and thousands of others holding a handful of shares).

I emailed Mercury Investor Relations and they advise.....

Shares held by the company as Treasury Stock are not taken into account for dividends and voting.

As per the Companies Act in respect of shares held as Treasury Stock (Section 67B):

“… the company shall not – Exercise any voting rights attaching to the share[s]; or
Make or receive any distributions authorised or payable in respect of the share[s]”

Regards,

TIM THOMPSON
HEAD OF TREASURY & INVESTOR RELATIONS

So this means that the dividend payout will be made to fewer shares (or held as a cash reserve possibly). I'm looking forward to a juicy divvy this year.

[huxley]

I emailed Mercury Investor Relations and they advise.....

Shares held by the company as Treasury Stock are not taken into account for dividends and voting.

As per the Companies Act in respect of shares held as Treasury Stock (Section 67B):

“… the company shall not – Exercise any voting rights attaching to the share[s]; or
Make or receive any distributions authorised or payable in respect of the share[s]”

Regards,

TIM THOMPSON
HEAD OF TREASURY & INVESTOR RELATIONS

So this means that the dividend payout will be made to fewer shares (or held as a cash reserve possibly). I'm looking forward to a juicy divvy this year.

Thanks for that and it makes sense since it basically increases the eps and therefore the value of the shares still on issue. It’s the mechanism of choice in markets which cannot pass on imputation so is more tax efficient than a dividend.

[fish]

https://www.reuters.com/article/us-ge-renewables/general-electrics-power-unit-fights-for-growth-as-wind-solar-gain-idUSKCN1IP0LE .

Forgetting green policies it is clear that the world is moving out of fossil fuels in a big way-wind and solar are already far cheaper than gas.

I have been really impressed by how some companies-mercury in particular-are positioning themselves for the future.
Cannot understand why such a negative view was taken of small investments the mcy board have taken to help enable them look at the future for nz-eg battery storage close to auckland,tilt reneweables,electric bikes,smart technologies.

The move to electric cars may start gaining momentum within the next 12 months and I suspect mercury will be assisting this

[fish]

Nice earnings upgrade for this financial year on basis of increased rainfall(maybe one of the few positive effects of global warming for mcy shareholders)

[value_investor]

Nice earnings upgrade for this financial year on basis of increased rainfall(maybe one of the few positive effects of global warming for mcy shareholders)

I think the initial guidance from them is intentionally low, the operating earnings last year was 523m. I'm interested in what the fuel tax will do in Auckland and whether it will shift people quicker to the electric side. I know that 11.5 cents isn't a lot but it plays a big part psychologically. We'll be seeing numbers at the pump we've never seen before.

Getting use to 2.30-2.40 for 91 everywhere, even thought it's quiet minimal on a yearly basis for most.

[fish]

I think the initial guidance from them is intentionally low, the operating earnings last year was 523m. I'm interested in what the fuel tax will do in Auckland and whether it will shift people quicker to the electric side. I know that 11.5 cents isn't a lot but it plays a big part psychologically. We'll be seeing numbers at the pump we've never seen before.

Getting use to 2.30-2.40 for 91 everywhere, even thought it's quiet minimal on a yearly basis for most.

The earnings upgrade annouced yesterday was stated to be on the basis of a big increase in rainfall.
Higher temperatures slightly reducing demand
.
Mercury are placing themselves well for the future

[Jantar]

.... I know that 11.5 cents isn't a lot but it plays a big part psychologically. We'll be seeing numbers at the pump we've never seen before.

Getting use to 2.30-2.40 for 91 everywhere, even thought it's quiet minimal on a yearly basis for most. I see very little effect in Auckland. The fuel companies are already doing what they have done any other time a regional or targeted fuel tax has been applied. They simply spread it over the entire country with the South Island being hit the hardest, and Auckland continuing to get the cheapest fuel in the country.

[blackcap]

I see very little effect in Auckland. The fuel companies are already doing what they have done any other time a regional or targeted fuel tax has been applied. They simply spread it over the entire country with the South Island being hit the hardest, and Auckland continuing to get the cheapest fuel in the country.

Exactly, the tax was never going to be applied to Auckland soley. Fuel companies will price where they can get the largest margins and if that means SI subsidies Auckland then so be it.

[Snoopy]

I have been really impressed by how some companies-mercury in particular-are positioning themselves for the future.
Cannot understand why such a negative view was taken of small investments the MCY board have taken to help enable them look at the future for nz-eg battery storage close to Auckland, tilt reneweables ,electric bikes, smart technologies.

The move to electric cars may start gaining momentum within the next 12 months and I suspect mercury will be assisting this.


Mercury shareholders might be interested in reading the back page of the NBR dated Friday 22nd June 2018. The gist of the article is that Mercury have bought themselves a position in 'Tilt Renewables', but have been refused board representation so don't have any control over their new investment. Furthermore 'Tilt' will be looking for more cash soon and Mercury will have to stump up with no control over how the money is spent.

The Author suggests that given the above, Mercury has overpaid for Tilt by coughing up well above the market price for their passive cornerstone stake.

Not mentioned in the article was Mercury's previous attempt to crack the international power station development market under previous CEO Doug Heffernon. This involved leveraging their own geothermal power station development experience by backing geothermal projects in the United States, Europe and Chile. This initiative was quickly snuffed out by incoming CEO Fraser Whineray. So are we now we are staring at a 'back to the future' initiative, except this time Mercury has no control of what will happen?

SNOOPY

[fish]

I thought infratil had the majority of shares so they will always have the say in Tilt.
This article is only for Paid content so I cant access but clearly its opinion.
The fact is that mercury have taken a position in Tilt and with current mega-profits being made by mercury they can afford it.

[Snoopy]

I thought iInfratil had the majority of shares so they will always have the say in Tilt.


Correct, Infratil controls Tilt, and they were buyers for the TECT Trust's Tilt shares that Mercury ended up buying. But obviously Infatil wer not buyer at the price that Mercury was prepared to pay.



This article is only for Paid content so I cant access but clearly its opinion.


Many local libraries stock the NBR these days!



The fact is that mercury have taken a position in Tilt and with current mega-profits being made by mercury they can afford it.


Mercury can certainly afford it. Mercury have consent to build wind farms. Tilt could do that for them. But I understood that more geothermal generation was more favoured for NZ going forwards? I think another undercurrent of the article was that Mercury had so much cashflow, they may not be spending it wisely,

SNOOPY

[macduffy]

It's hard to see where IFT's and MCY's interests would conflict - IFT favouring Trustpower's interests over MCY's, perhaps?

[fish]

Very high wholesale prices on the last day of mcy financial year and hydrology good so should be a stunning annual result.

[fish]

Very high wholesale prices on the last day of mcy financial year and hydrology good so should be a stunning annual result.
Final quarterly result out today
Confirms record generation.
Also a trend to higher NI prices-$78 mwh compared to $64 SI.
Confirmed also that 1.8% growth in whole market driven mainly by a 1.2% growth in Urban.
I have now sold out totally from contact and using proceeds to buy more and more mercury

[bull....]

who would have thought a after ift say not interested in mcy in tlt

[bull....]

buyers seem to like mcy over ift on the recent news

[couta1]

buyers seem to like mcy over ift on the recent news Stock is undervalued IMO and the pick of the power companies at the moment, expecting a nice divvy forthcoming.

[bull....]

Stock is undervalued IMO and the pick of the power companies at the moment, expecting a nice divvy forthcoming.

agreed hasnt performed as well as say mel or cen or gne so catchup is possible. do you think they will pay a special div again?

[couta1]

agreed hasnt performed as well as say mel or cen or gne so catchup is possible. do you think they will pay a special div again? A special almost certain I reckon, should at least equal last year's 13.8c fully imputed final divvy.

[King1212]

To be honest not much stocks are undervalued, most are priced in or overvalued...

[fish]

interesting feature page on electricity storage in todays Herald-Tasmania is going for pumped hydro in a big way.
Its got real longevity and is really green

If anyone is going to the AGM on Tuesday it would be great to ask if mcy have scoped this fully.
We know there has been record generation and income but I do wonder if the sp has reflected how well mcy are doing
Low interest rates and,extra pot aluminium will reduce available SI energy.
Current high prices are promising

[bull....]

Stock is undervalued IMO and the pick of the power companies at the moment, expecting a nice divvy forthcoming.

must have read your post its powering up today

[Beagle]

Stock is undervalued IMO and the pick of the power companies at the moment, expecting a nice divvy forthcoming.

Consensus view of analysts is outperform. Smart man of CNBC the other day recommended investors add to defensive high yielding positions in utilities so I did that today with this. I also hold some Meridian and Genesis.

[couta1]

Consensus view of analysts is outperform. Smart man of CNBC the other day recommended investors add to defensive high yielding positions in utilities so I did that today with this. I also hold some Meridian and Genesis. Wise move Beagle, $3.60 is my target, why people would pay $4 for SPk or $4.40 for CNU instead is beyond me.

[horus1]

The risk is a price review and overcharging of domestics . Tiwai 5.5c/kwhr , domestics pay 15-20. No justice.Look at what is happening in AU

[King1212]

No special dividend...:mellow:

[couta1]

No special dividend...:mellow: No, a bit of a disappointment based on the result.

[RTM]

No, a bit of a disappointment based on the result.

Money spent on buying back stock ?

[couta1]

Money spent on buying back stock ? Yep that will be it, 50 mill spent on that, total dividends down from 19.6c last year to 15.1c this year. Share buy back hasn't done anything for the SP unfortunately.

[bull....]

excellent result , special div money was used to invest for growth which will benefit long term holders more thru rising divs each yr

[RTM]

From the release...
"Employee engagement increased to 81.5% from 81% as measured by the 2018 IBM
Employee Engagement Survey Index."

Getting pretty desperate to call this an increase !

[Raz]

Not happy with this one bit!!

[RupertBear]

Would be greatful of peoples thoughts on the following. I had been planning on buying a few TLT shares before the take over offer was announced. I am now weighing up buying a few IFT or MCY. I was waiting for todays result before deciding which. Needless to say todays result hasnt helped me. My other thought was buying some MEL. I am looking for a good defensive stock with some good growth as well as a long term hold. I am thinking IFT might be the best option. :confused: Appreciate anyones ideas on this Cheers

[RupertBear]

Hmmm after reading that MCY say it is too early to tell how investing in TLT renewables will play out for them, MEL might be a better option to invest in atm.

[horus1]

IFT is the future and they seem to me to have got the best endofthe TLT deal

[RTM]

Would be greatful of peoples thoughts on the following. I had been planning on buying a few TLT shares before the take over offer was announced. I am now weighing up buying a few IFT or MCY. I was waiting for todays result before deciding which. Needless to say todays result hasnt helped me. My other thought was buying some MEL. I am looking for a good defensive stock with some good growth as well as a long term hold. I am thinking IFT might be the best option. :confused: Appreciate anyones ideas on this Cheers

I have considered Infratil several times and not bought. I seem to remember reading about them on Craigs and part of the flavour being...Why would you buy Infratil when you can just invest in the companies that they are invested in. e.g. Met, TPW. Why pay for the additional layer of cost that Infratil brings ? Of course you can not invest in everything Infratil buys. e,g Canberra Data Center and Wellington Airport. So...still not in.

[tim23]

Yep that will be it, 50 mill spent on that, total dividends down from 19.6c last year to 15.1c this year. Share buy back hasn't done anything for the SP unfortunately.

Bu the 19.6 included 5c special so dividend is up if you deduct this, a few years back they paid a special in December so still hope.

[GTM 3442]

Would be greatful of peoples thoughts on the following. I had been planning on buying a few TLT shares before the take over offer was announced. I am now weighing up buying a few IFT or MCY. I was waiting for todays result before deciding which. Needless to say todays result hasnt helped me. My other thought was buying some MEL. I am looking for a good defensive stock with some good growth as well as a long term hold. I am thinking IFT might be the best option. :confused: Appreciate anyones ideas on this Cheers

I got some TLT when Infratil prised them out of Trustpower. I have since bought some more. I thought (and still think) that they are a good buy, even though I suspect there will be capital raisings in the short term.

I will take the money and split it between IFT & MCY in the same proportion that their holdings in TLT.

This will give me more MCY and a new position in IFT.

But no TLT, which is a b*gger.

[bull....]

looks like all the disappointed special div people selling out

[couta1]

looks like all the disappointed special div people selling out Not me I'm adding at these nutty low prices.Disc-Holding LOTS.

[bull....]

Not me I'm adding at these nutty low prices.Disc-Holding LOTS.

and mel and gne are up today confirms it could be an opp

[cdonald]

My biggest fear in investing in one of the power companies is the current govt coming in an legislating against making profits etc. I think with all of the taxes going on fuel and landfills etc with investigations ongoing into petrol prices that the power co's must be on the radar of the govt.

[Vagabond47]

My biggest fear in investing in one of the power companies is the current govt coming in an legislating against making profits etc. I think with all of the taxes going on fuel and landfills etc with investigations ongoing into petrol prices that the power co's must be on the radar of the govt.

Given that the govt is the biggest shareholder in GNE, MEL and MCY that would be somewhat silly of them.

[percy]

My biggest fear in investing in one of the power companies is the current govt coming in an legislating against making profits etc. I think with all of the taxes going on fuel and landfills etc with investigations ongoing into petrol prices that the power co's must be on the radar of the govt.

Bugger the power companies,you bugger the NZ sharemarket.
Bugger the NZ sharemarket,you bugger the country.

[cdonald]

yup, totally understand what you are saying.

[SCOTTY]

My biggest fear in investing in one of the power companies is the current govt coming in an legislating against making profits etc. I think with all of the taxes going on fuel and landfills etc with investigations ongoing into petrol prices that the power co's must be on the radar of the govt.
I seem to recall that the Labour Party said at the time of the power company sales that they would cancel the sales when they got into Government? Not sure how they would do that?

[King1212]

looks like all the disappointed special div people selling out

At current SP...MCY is $3.31 and MEl is $3.285
1000 shares at MCY gives u dividend $91 and MEL is $113.80

i think the yield chasers sold out and move to MEL?

both good companies..well positioned in term of electric cars transition. But still, almost $22 per 1000 shares difference. So, I think would see MCY down a bit as yield chasers moving to MEL?

[Beagle]

At current SP...MCY is $3.31 and MEl is $3.285
1000 shares at MCY gives u dividend $91 and MEL is $113.80

i think the yield chasers sold out and move to MEL?

both good companies..well positioned in term of electric cars transition. But still, almost $22 per 1000 shares difference. So, I think would see MCY down a bit as yield chasers moving to MEL?

Yeap, GNE up today and they have the highest yield. I think a lot of people use these shares as a bond proxy to get a decent yield.

Mercury or Meridian, forget which one in their analyst presentation had a thing looking at average retail price in N.Z. which is about 29 cents per kw/hr compared to Australia at 40 cents and the U.K. about 30 cents when you do the currency conversion. Retail prices in N.Z. according to the same presentation have on average gone up just 1.4% per annum over the last decade. Seems reasonable on a comparative basis. Not sure why people don't shop around ? (I'm paying 17 cents per kw/hr and have some price lock down deal until I forget when).

[bull....]

At current SP...MCY is $3.31 and MEl is $3.285
1000 shares at MCY gives u dividend $91 and MEL is $113.80

i think the yield chasers sold out and move to MEL?

both good companies..well positioned in term of electric cars transition. But still, almost $22 per 1000 shares difference. So, I think would see MCY down a bit as yield chasers moving to MEL?

did your comparison take account this is mel last yr of specials too? and i agree with the reasoning

[boysy]

Not true if you read the Ann the MEL specials have been extended another 2 years ...

[bull....]

Not true if you read the Ann the MEL specials have been extended another 2 years ...

isnt that from 2020 yr? and only for another 2 yrs

[King1212]

I seem to recall that the Labour Party said at the time of the power company sales that they would cancel the sales when they got into Government? Not sure how they would do that?

How are they going to buy back? Almost 10billions. The current government already struggling...teachers, nurses increase pays, kiwibuild ....benefits and etc

[boysy]

Meridian has also declared a final special dividend of
2.44 cents per share ($6.25 million) under the company’s existing five-year capital management programme to return $625 million to shareholders. While the company’s existing five-year capital management programme runs through to 2020, the Board is considering the medium-term outlook and future capital requirements of the business. Under current circumstances the Board considers it appropriate to signal now its intention to pursue a further two years of capital management beginning in August 2020, seeking to return a further $250 million to shareholders.

[percy]

Maybe investors are taking notice of Craigs ?.
Yesterday Craigs headline was .:Mercury overheated.....reduce to Sell.
Target price $3.36.

[percy]

I seem to recall that the Labour Party said at the time of the power company sales that they would cancel the sales when they got into Government? Not sure how they would do that?

I guess once Labour got into power. they found out the real reason National sold them off, was to support the NZ Share market.

[Beagle]

How are they going to buy back? Almost 10billions. The current government already struggling...teachers, nurses increase pays, kiwibuild ....benefits and etc

Exactly. At best there will be some more tinkering around the fringes. Maybe some additional funding to help promote more competition, .more advertising with power switch for example. Don't forget folks that they already have the winter relief payments to pensioners and the needy.

[bull....]

Meridian has also declared a final special dividend of
2.44 cents per share ($6.25 million) under the company’s existing five-year capital management programme to return $625 million to shareholders. While the company’s existing five-year capital management programme runs through to 2020, the Board is considering the medium-term outlook and future capital requirements of the business. Under current circumstances the Board considers it appropriate to signal now its intention to pursue a further two years of capital management beginning in August 2020, seeking to return a further $250 million to shareholders.

okay so runs thru to 2022 , king analysis is right on the money , people selling to mel. guess you have to consider who has the best growth propects as well

[percy]

Exactly. At best there will be some more tinkering around the fringes. Maybe some additional funding to help promote more competition, .more advertising with power switch for example. Don't forget folks that they already have the winter relief payments to pensioners and the needy.

Who was it who decided the wife was more needy than me.??,,..lol/.

[RTM]

Exactly. At best there will be some more tinkering around the fringes. Maybe some additional funding to help promote more competition, .more advertising with power switch for example. Don't forget folks that they already have the winter relief payments to pensioners and the needy.

I must be a pensioner as I'm certainly not needy.
Crazy to pay this to everyone whether you needed it or not.
Should have had to go onto the Pensioner Site and tick a box that you wanted it.
Rather than opting out. I can only think that they might have considered that many of Beagles needy might have missed out thru ineptitude.

[couta1]

okay so runs thru to 2022 , king analysis is right on the money , people selling to mel. guess you have to consider who has the best growth propects as well That's the key, which has the best growth propects, IMO MCY is currently undervalued(Take Craig's advice with a pile of rock salt) MEL at $3.285 and GNE at $2.59 look overvalued to me and I wouldn't buy them currently.

[percy]

That's the key, which has the best growth propects, IMO MCY is currently undervalued(Take Craig's advice with a pile of rock salt) MEL at $3.285 and GNE at $2.59 look overvalued to me and I wouldn't buy them currently.

Oh dear.????
I only own two power companies......GNE and MEL....lol.

[couta1]

Oh dear.????
I only own two power companies......GNE and MEL....lol. No worries Percy, I bet you didn't pay current prices for them.Lol.

[percy]

No worries Percy, I bet you didn't pay current prices for them.Lol.

Correct,.....
Love it when governments sell you the silverware at knock down prices.

[couta1]

At current SP...MCY is $3.31 and MEl is $3.285
1000 shares at MCY gives u dividend $91 and MEL is $113.80

i think the yield chasers sold out and move to MEL?

both good companies..well positioned in term of electric cars transition. But still, almost $22 per 1000 shares difference. So, I think would see MCY down a bit as yield chasers moving to MEL? There's not $22 in it once it hits your bank account because the MEL special is unimputed, more like $14 per 1000 shares, taking brokerage fees into account to sell then buy there's nothing much in it

[boysy]

I would imagine yield chasers in the above scenario have more than 1000 shares hence wouldn’t expect brokerage to be an issue when deciding where to park ones funds ...

[bull....]

also worth noting is mcy pe ratio is way less than mel therefore your paying less for future earnings

[couta1]

also worth noting is mcy pe ratio is way less than mel therefore your paying less for future earnings Good point and backing up my undervalued call.

[bull....]

mcy up today and mel down heaps , switching back lol

[RTM]

mcy up today and mel down heaps , switching back lol

https://switchme.co.nz/?gclid=Cj0KCQjwk_TbBRDsARIsAALJSOZV9Ze5bboM-GmWwSXV6Lj0q82Kmld7Ih5z53W6RKe0fHMvRSQ67_MaAoYjEAL w_wcB

Maybe they could adapt this so that we could decide. I think I have them all....just in case.

[fish]

Only a few more days before mcy go ex-dividend(no special dividend I presume because of buying into TILT).
Favourable hydrology continues and very high power prices everytime I look.
I suspect this first quarter could be another record

[couta1]

Only a few more days before mcy go ex-dividend(no special dividend I presume because of buying into TILT).
Favourable hydrology continues and very high power prices everytime I look.
I suspect this first quarter could be another record So far a very subdued run up to the Ex divvy date, I think many were disappointed by the lack of a special divvy and have been selling, the SP has dropped from a year ago even with a better result, perhaps many aren't impressed with this whole TILT idea.

[Aaron]

I guess it is a journalists summary of the report so there may be gaps but I like the sound of the last paragraph

https://www.stuff.co.nz/business/106988949/rising-power-prices-pushing-kiwi-households-into-power-poverty

"The review noted that while the industry did not seem to be making excessive profits, it could have a more effective wholesale contract market and could be more efficient in the way its lines companies operated."
Although maybe not good for lines companies. Other than Vector what other lines companies can we invest in?

Will this be enough to make govt. introduce new regulation. I like that the NZ Taxpayer still owns 51% so they won't screw themselves but the likes of vector might get something.

[Bobdn]

Interesting. Good to see lines companies mentioned. I thought they were off limits but clearly their impact couldn't be ignored.

[fish]

Record date is today so last chance to buy before going ex.
Should be making record profits on current financial and weather forecasts.

[fish]

Just looked at sp-makes me wonder if ex-dividend already.
Am in Europe so not following it closely.
If not ex-dividend today should be a bargain today

[thestg]

Just looked at sp-makes me wonder if ex-dividend already.
Am in Europe so not following it closely.
If not ex-dividend today should be a bargain today

Yes it is XD today

[777]

Record date is today so last chance to buy before going ex.
Should be making record profits on current financial and weather forecasts.

Record day is always two days after a share is cum dividend. Therefore it is ex dividend the day before the record date.

[fish]

Record day is always two days after a share is cum dividend. Therefore it is ex dividend the day before the record date.

Thanks for that.I should know and usually use the ex-dividend dates in mondays NZ Herald to keep me right.

[Marilyn Munroe]

The government sponsored Electricity Price Review has harrumphed about the cost of domestic electricity in Gods Own Country particularly the impact on poor households.

With a socialist orientated coalition government in power it would be reasonable to assume the Government would intervene in electricity pricing to benefit the poor.

Fear not filthy capitalist exploiters who own gentailer shares. I will let you in on to a secret, the profits from 51% government owned gentailers are taxation by other means. Any power charge relief mandated by the Government would hit themselves in the pocket. Grant Robertson would need to find another source of funds for his colleagues to spread upon the waters.

Boop boop de do
Marilyn

https://www.mbie.govt.nz/info-services/sectors-industries/energy/electricity-price-review/consultation/first-report.pdf

[Timesurfer]

Interesting study Marilyn.
Tragic case studies, and an eye opener into how many people with good incomes are living beyond their means.
Good to see residential supplies subsidizing industry - especially those that don't shop around.

It will be interesting to see which companies get more creative about generation moving forward to meet the growing demand. Dams are old technology and we can't keep building them moving forward. Wind and solar come with their own issues. Tidal energy has to be one area of the biggest untapped resources we have. Because we have had easy generation for years we don't appear to be leading world in electricity generation innovation as we do in some of our more competitive industries. Could be wrong?

[fish]

The government sponsored Electricity Price Review has harrumphed about the cost of domestic electricity in Gods Own Country particularly the impact on poor households.

With a socialist orientated coalition government in power it would be reasonable to assume the Government would intervene in electricity pricing to benefit the poor.

Fear not filthy capitalist exploiters who own gentailer shares. I will let you in on to a secret, the profits from 51% government owned gentailers are taxation by other means. Any power charge relief mandated by the Government would hit themselves in the pocket. Grant Robertson would need to find another source of funds for his colleagues to spread upon the waters.

Boop boop de do
Marilyn

https://www.mbie.govt.nz/info-services/sectors-industries/energy/electricity-price-review/consultation/first-report.pdf

Thanks for this Helpful and important post Mariyn.

[fish]

agm this morning-webcast at 10.30
Also final dividend due to be paid today.
I am expecting it to be very positive so will be interesting to watch the sp

[Aaron]

Still no word on whether something will come from the electricity sector review?
https://www.msn.com/en-nz/money/news/gloves-off-and-finger-pointing-within-power-industry/ar-BBOQNpW?ocid=spartandhp


Can't say I like Electric Kiwis idea.

[Zaphod]

Still no word on whether something will come from the electricity sector review?
https://www.msn.com/en-nz/money/news/gloves-off-and-finger-pointing-within-power-industry/ar-BBOQNpW?ocid=spartandhp


Can't say I like Electric Kiwis idea.

Personally, I'm not convinced that is warranted at this stage either. What I would like to see, is a comprehensive review of the lines companies and their pricing including the effectiveness of existing regulation.

[horus1]

The report is out in May. The first report was very poor, no decent analysis and the facts were from Trustpower, a biased generator. The whole industry will get a haircut to happen after the next election.

[hogie]

I don't know what everyone is complaining about ... I'm getting amazing deals on my residential power bill ... infact if you subtract the entrust dividend from our power bill we actually make a profit over the course of the year :t_up:

[horus1]

The price review doesnt take account of the Entrust dividends. Says you are paying high charges. It is the worst report I have seen in my time in the Industry and that is 50 years . 30 at very senior levels.

[fish]

Spot electricity prices are now high all day.
I can see this continuing with genesis unit 5(403mw) out of action and dry conditions plus extra Tiwai pot.
Its very difficult to work out which gentailer will profit out of this.
My speculation is that meridian and trustpower will be disadvantaged.
Possibly mercury,contact and genesis could do well.
I wonder if anyone better qualified has done the research as to which gentailer will have the best 6 monthly report

[Joshuatree]

I hope you get a bite, id be int too.:)
South island lakes are low. How is lake taupo?
Gas supply is currently limited.
A Rankine unit is down /being in maintainence?
So we have an energy shortage atm, a bit of perfect storm.

[Marilyn Munroe]

I recall in past years Huntly has had to shut down over summer because its resource consent to discharge cooling water into the Waikato River is suspened when the river water temperature rises above a certain level. Should the current situation continue and the water temp restriction come into force hillarity will ensue.

Boop boop de do
Marilyn

[Beagle]

I recall in past years Huntly has had to shut down over summer because its resource consent to discharge cooling water into the Waikato River is suspened when the river water temperature rises above a certain level. Should the current situation continue and the water temp restriction come into force hillarity will ensue.

Boop boop de do
Marilyn

I think we have to keep the lights on regardless this year. At a guess I'd suggest GNE will be doing well out of this situation this half.

[Snow Leopard]

I recall in past years Huntly has had to shut down over summer because its resource consent to discharge cooling water into the Waikato River is suspened when the river water temperature rises above a certain level. Should the current situation continue and the water temp restriction come into force hillarity will ensue.

Boop boop de do
Marilyn

It used to be, and as far as I am aware still is that:

The discharge of cooling water into the river is limited by the temperature of the water measured [one km?] downstream of the station not exceeding 25C.

So if the upstream temperature is at or above that limit then generation is limited by the capacity of the onsite [re circulatory] cooling system which can handle, from memory, about 250MW of generation.

[Beagle]

There's a staggering amount of water flowing past that Huntly power station every minute of the day. I find it hard to comprehend how the operation of a couple of rankine units would make much of a difference to the temperature...but I am not pretending to have any expertise whatsoever on the matter.

[Jantar]

There's a staggering amount of water flowing past that Huntly power station every minute of the day. I find it hard to comprehend how the operation of a couple of rankine units would make much of a difference to the temperature...but I am not pretending to have any expertise whatsoever on the matter. They sure do affect the temperature. The heat output into the cooling water is around 25 MW per unit and if only 50% of that gets into the Waikato river, then that is a huge warming effect.

The resource consent on river heating is not just the 25 deg maximum, there is also a temperature difference between above and below the station. Although that difference is less likely to restrict the station output than the strict maximum.

[777]

Too volatile for one supplier.....

https://www.stuff.co.nz/business/108406838/power-retailer-payless-energy-to-stop-selling-electricity-due-to-wholesale-electricity-market-volatility

[Joshuatree]

I hope you get a bite, id be int too.:)
South island lakes are low. How is lake taupo?
Gas supply is currently limited.
A Rankine unit is down /being in maintainence?
So we have an energy shortage atm, a bit of perfect storm.

"How is lake Taupo?"
Saw a snippet in the herald today. lake taupo level at a 2 year low atpit.

[Joshuatree]

"Batteries
> Useful when coupled to solar but at significant additional cost
> Lake Taupo storage equivalent to 41m 14kWh Tesla Powerwalls"
Mercury Investor Roadshow Presentation November 2018 29 pages 2.4MB (https://www.asx.com.au/asx/statistics/displayAnnouncement.do?display=pdf&idsId=02049314)

[horus1]

In this market batteries plus solar will make money as you can go on spot and get peak prices.

[fish]

In this market batteries plus solar will make money as you can go on spot and get peak prices.

What mercury is pointing out is that lake taupo in the right conditions-usually winter -can be used as a massive storage peaker equivalent in power to a massive number of tesla batteries.

If solar plus batteries made economic sense wouldnt we be doing it now ?

Lots of rain now forcast-if it eventuates in mcy catchment we will see prices back to normal.

[Snow Leopard]

Of the few shares that I currently hold this is the best performing, as in the only one where the price is rising, over recent months.

In fact, as I fortunately bought most of my holding very close to the all time low nearly five years ago, on a dividend inclusive basis this has turned out to be one of my best long-term investments, ever.

However I see the current buying being the blind purchasing of a 'quality defensive utility' and the Panther senses are tingling that this is more than fully priced.

So, I am wondering whether to follow my version of technical analysis on this and sell on the next bout of price weakness and may be buy a property to live in and some other utility instead.

[Bobdn]

Yes, I think you're right. I'm about 5 days ahead of you :) This week I sold two thirds of my electricity sector stocks, my largest holding at 18 per cent of my portfolio. Remarkably, despite the chaos, or because of it, they were close to 52 week highs. It took me longer than expected for them to sell and while I didn't have a monster holding I still had to do it in bite size chunks over the last 5 days. I can't imagine what happens in our small market when more than a few people are heading towards the exit.

I've also noticed the chatter about moving towards "defensive" stocks. For me "defensive" just means losing 25 per cent of my portfolio rather than 50 per cent, when things really get nasty. Most of us have been investing since 1987 and we know that when things go really south, no one gets out of here alive. Cash is the only true defensive position.

Just to come completely clean, I had an extra incentive to sell. I borrowed a little over $200,000 to invest in this sector in 2014 and, up until the sale, still owed $180,000. It's all worked out well with the tax deductions, appreciation and exceptional dividends. However given the strong performance of the shares lately, the poor performance of every other sector, and the fact that I'm retired, it was time to settle up. No one ever went broke taking a profit, especially when it wasn't their money to begin with. Buffet is right of course, never borrow money to invest. On Friday afternoon I was chuckling and thought "what was I thinking!". Still, all's well that ends well. But no more debt shenanigans for me - not that I could if I wanted to, banks don't look fondly on retirees.

Notwithstanding all of the above, I'm keeping the remaining electricity shares. I now own them free and clear, the dividends are intoxicating and interest rates are going nowhere. The dividends also make me feel as though I get my electricity for free.

[fish]

Well done Bobdn.
Time in the market,selling at the right time for you and choosing the right stocks is the key to success.
May you keep enjoying the dividends and very low risk

[couta1]

The power companies are great dividend payers but are all currently either fully or overpriced so I wouldn't buy any of them ATM.

[fish]

The power companies are great dividend payers but are all currently either fully or overpriced so I wouldn't buy any of them ATM.

Nor would I..
They are priced at market value and as such for a young investor with a long-term outlook they should be considered as part of a portfolio-In this situation it looks to me to be a good place to invest.

[Jonboyz]

MCY and MEL stock prices were running neck and neck for a while, now MCY is at a greater discount compared to forward P/E and a better dividend. Any thoughts on which is the better investment atm?

[Beagle]

Direct broking is showing net yield of MEL at 5.18% and MCY at 4.21%. The only reason to own the gentailiers is safe yield in my opinion so that explains why I hold MEL in preference to MCY. Hope that helps.

[bull....]

Direct broking is showing net yield of MEL at 5.18% and MCY at 4.21%. The only reason to own the gentailiers is safe yield in my opinion so that explains why I hold MEL in preference to MCY. Hope that helps.

compare mel 5.18% , mcy 4.21% and gne 8.6% gross and on that basis gne looks way to cheap

[blackcap]

compare mel 5.18% , mcy 4.21% and gne 8.6% gross and on that basis gne looks way to cheap

Wow GNE needs to be at about $4.50 on that basis. Might top up bigly my GNE shares today. This is seriously undervalued on a yeild basis.

[bull....]

Wow GNE needs to be at about $4.50 on that basis. Might top up bigly my GNE shares today. This is seriously undervalued on a yeild basis.

also based on the historical difference in stock prices between mel, mcy and gne, gne has not kept pace lately and is at a discount to this should be closer to 3 by my assumptions

[huxley]

also based on the historical difference in stock prices between mel, mcy and gne, gne has not kept pace lately and is at a discount to this should be closer to 3 by my assumptions

Haha, sure but you’re getting exposure to some pretty different energy assets with GNE. Oil and gas fields plus the thermal generators have a much shorter life cycle than those hydro assets which dominate MEL and MCY. Therefore it’s not surprising the market assigns a different market price here as the outlook for their cashflows are quite varied :)

[Beagle]

compare mel 5.18% , mcy 4.21% and gne 8.6% gross and on that basis gne looks way to cheap
mcy and mel yields were straight off direct broking website and are net yields and I have not grossed up for imputation credits.
8.6% gross yield for GNE has been grossed up and is based on GNE's own calculations based on average price last year of $2.61.

I have crunched all the numbers on current share price and taking into account the degree of imputation credits below :- (this post to be continued)
MCY $3.60 Final divvy FY18 and Interim divvy FY19 total 15.3 cps 100% imputed = 21.25 cps gross = gross yield 5.9%
MEL $3.71 Final divvy FY18 incl special and Interim divvy FY19 incl special, ordinary divvies 86% imputed, special's not, gross divvy total 24.1 6 cps = gross yield 6.5%
GNE $ 2.79 Final divvy FY18 and interim divvy FY19 total 17.05 cps 80% imputed = gross 21.97 cps = gross yield of 7.9%

MEL divvy is supplemented with capital management program which is reviewed from time to time.
GNE earnings and their ability to pay these divvies is supplemented by Kupe and gas fields that from memory make up somewhere around one quarter of EBITDAF and are in very gradual decline
FWIW I hold GNE MEL and Contact.

[emveha]

On the way up to $4... Not a bad trip for those who bought in at 2.50, nearly 6 years ago.

[waikare]

On the way up to $4... Not a bad trip for those who bought in at 2.50, nearly 6 years ago.

A rather slow trip, early April 2016 SP $2.86, same month 2017 $3.18, 2018 $ 3.26, and today $3.87, check back at Christmas (no particular year) it may have reached the $4.00 mark.

[Snow Leopard]

Well much to my surprise I have a few MRP shares sitting in the shoe box in the corner looking a little unloved.
If I ever come up with a good reason for why they are here (short term rising price and volume probably) I will let you know.
If they resume their decline I will shoo them out.

Best Wishes
Paper Tiger

Bought at $2, 5 years ago. Never got round to telling them to leave. :)

Also bought a few more since then. :mellow:

[fish]

Bought at $2, 5 years ago. Never got round to telling them to leave. :)

Also bought a few more since then. :mellow:

once they bought into Tilt I felt the strategy must confirm their confidence in windpower in the right conditions .
With consents ,planning and contracts in place they could be running sooner than expected-?at the end of winter.
Windpower compliments hydro and starting small but with provision to rapidly expand is a good strategy confirming my confidence in the company.
It is my biggest investment for my impeding retirement

[bull....]

On the way up to $4... Not a bad trip for those who bought in at 2.50, nearly 6 years ago.

has the lowest yield of all the gentailers , people probably view others for yield as a better investment for income eg gne

[horus1]

It seems to me that as the CO2 taxes bite these are the best positioned.

[Beagle]

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12215148
I am curious as to why a power company needs such ritzy digs in one of the most expensive parts of Auckland and I am quite pleased that this is one utility I chose not to invest in after reading this.

[traineeinvestor]

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12215148
I am curious as to why a power company needs such ritzy digs in one of the most expensive parts of Auckland and I am quite pleased that this is one utility I chose not to invest in after reading this.

From the perspective of a (very small) Augusta shareholder it looks like an excellent use of MCY shareholders' funds to me. :laugh:

[sb9]

Looks like its day of downgrades today..

https://www.nzx.com/announcements/333499

"18 April 2019 – Mercury announced today that it has revised its FY2019 EBITDAF guidance from $515 million to $495 million. This is due to an expected 150 GWh reduction in full year forecast hydro generation due to continued dry weather in the Taupo area. Based on hydro generation year to date and the current below average Taupo lake level, this 150 GWh reduction is forecast to mostly occur in Q4-FY2019. FY2019 annual hydro generation is now forecast to be 4,000 GWh in line with the historic average."

[Hectorplains]

Looks like its day of downgrades today..

https://www.nzx.com/announcements/333499

"18 April 2019 – Mercury announced today that it has revised its FY2019 EBITDAF guidance from $515 million to $495 million. This is due to an expected 150 GWh reduction in full year forecast hydro generation due to continued dry weather in the Taupo area. Based on hydro generation year to date and the current below average Taupo lake level, this 150 GWh reduction is forecast to mostly occur in Q4-FY2019. FY2019 annual hydro generation is now forecast to be 4,000 GWh in line with the historic average."

Today in CEN's March op report - Taranaki Combined Cycle plant, "entered into an agreement that will enable sustained operation ." Looks like big early winter price spikes around peak periods could be ahead. That's more bad news for Flick et al. Cen's South Island storage looks good.

[Hectorplains]

Today in CEN's March op report - Taranaki Combined Cycle plant, "entered into an agreement that will enable sustained operation ." Looks like big early winter price spikes around peak periods could be ahead. That's more bad news for Flick et al. Cen's South Island storage looks good.

GNE feeling the pinch too - "Genesis now expects an outcome towards the lower end of its previously stated
FY19 EBITDAF guidance of $360 million to $375 million."

[Snoopy]

Today in CEN's March op report - Taranaki Combined Cycle plant, "entered into an agreement that will enable sustained operation ." Looks like big early winter price spikes around peak periods could be ahead. That's more bad news for Flick et al. Cen's South Island storage looks good.


I see no reason for it to be a general rule. But it does seem that when things are not so optimal for MCY, they are looking better for CEN. A really clever trader might be able to develop a long term strategy to 'swap between the two'. I prefer to not worry about picking which way the market is going and just own both!

SNOOPY

[Snow Leopard]

Low interest rates, with the threat of lower again, plus that magic element that keeps the SP of utilities like this so high and I find that I have averaged a 20% compound annual return over the 5 years since buying in (with bottle top medals for brilliance in hindsight handed out for some fortuitous bottom picking).

Investing is a random pudding sprinkled with a light topping of luck. ( Tis supper time here :t_up: )

[bull....]

Low interest rates, with the threat of lower again, plus that magic element that keeps the SP of utilities like this so high and I find that I have averaged a 20% compound annual return over the 5 years since buying in (with bottle top medals for brilliance in hindsight handed out for some fortuitous bottom picking).

Investing is a random pudding sprinkled with a light topping of luck. ( Tis supper time here :t_up: )

very nice return

[fish]

Low interest rates, with the threat of lower again, plus that magic element that keeps the SP of utilities like this so high and I find that I have averaged a 20% compound annual return over the 5 years since buying in (with bottle top medals for brilliance in hindsight handed out for some fortuitous bottom picking).

Investing is a random pudding sprinkled with a light topping of luck. ( Tis supper time here :t_up: )

Agree with the first paragraph and often the 2nd applies.
Mercury is positioned well and its future looks bright.
This year financially will have a small adverse effect due to the extremely dry summer.
I am now out of all gentailers apart from mercury which I see as having the most promising future

[bull....]

top performer this mth of the gentailers , playing catch up

[bull....]

on fire up 17% for the mth

[trader_jackson]

I don't get it... why is this going up so much? Yea I know interest rates are expected to stay lower for longer, but there has been a massive re-rating on MCY more so than other gentailers I feel (don't actually know if this is the case)

[bull....]

I don't get it... why is this going up so much? Yea I know interest rates are expected to stay lower for longer, but there has been a massive re-rating on MCY more so than other gentailers I feel (don't actually know if this is the case)

it was playing catch up the other gentailers . that was the opp to close the gap. it happened with gne a while ago as well when i was saying on that thread it wass not going up as much as the others and then it had its catchup although it has been a bit of laggard this mth so maybe your get gne play a catchup again soon to match the others performance this mth.

[tipsy]

New ATH, not much in the way of $5 now.

[winner69]

Wonder if they use the phrase ‘mercury rises / rising” much. (Even though profits down 11%)

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/MCY/339377/305610.pdf

Mercury rises to challenge with strong FY2019 result

[Pmdv77]

EBITDAF down 11%, Profit up 53% on the back of gains on metering business. No further information in the simple release to understand what the result looks like with the one off taken out - would have been interesting to note given "average" hydro generation. Drop in interest rates will help ongoing depending on what their hedged position looks like.

[fish]

EBITDAF down 11%, Profit up 53% on the back of gains on metering business. No further information in the simple release to understand what the result looks like with the one off taken out - would have been interesting to note given "average" hydro generation. Drop in interest rates will help ongoing depending on what their hedged position looks like.
Have only skimmed the results.
Looks far better than I expected in a dry year.
Next years forecast earnings based on average year look fantastic
The first 2 months earnings are going to be high with lots rainfall and high spot prices.

[bull....]

market loves the results new highs today

[fish]

market loves the results new highs today

Just sold a small amount at $5-20 as now too high a percentage of my portfolio value-bought them 4 years ago at a little over 1/2 value sold.
Want to buy more nzo-cannot let OGOG buy them at a steal

[RTM]

https://www.msn.com/en-nz/news/national/another-nail-in-the-coffin-for-endangered-eels/ar-AAGjrAi?ocid=spartanntp

Doesn't sound like it there is a low cost effective solution.

[Snow Leopard]

I find myself in the absolutely unbelievable position of having MCY has my largest holding.

The price that Mercury & the like are trading at is beyond belief. :confused:

[bull....]

I find myself in the absolutely unbelievable position of having MCY has my largest holding.

The price that Mercury & the like are trading at is beyond belief. :confused:

not if you think interest rates are going to zero or even negative. then the price is very rational at a 3 - 4% div yield. just ask some people getting zero % overseas.

[Lewylewylewy]

More rational to accept the low rate for a year, then buy in when the price goes down.

[fish]

More rational to accept the low rate for a year, then buy in when the price goes down.

What happens if we have low rates for 5 years?
Might the price go up and up?
You could miss out on any profit anywhere.
Diversification is the rational answer.
Its rational if you are at retirement age to have some in the bank and some in safe stocks as well as property(at least your house)

[couta1]

What happens if we have low rates for 5 years?
Might the price go up and up?
You could miss out on any profit anywhere.
Diversification is the rational answer.
Its rational if you are at retirement age to have some in the bank and some in safe stocks as well as property(at least your house) I see Red lights flashing for most of the NZX at current prices particularly the power companies. PS-Not into Diworsification and only hold 3 stocks(1 Divvy + 2 Growth)

[fish]

I see Red lights flashing for most of the NZX at current prices particularly the power companies. PS-Not into Diworsification and only hold 3 stocks(1 Divvy + 2 Growth)

Diversification to me is 2 houses,an orchard(diversified of course),6 stocks, and a few smaller varied investments including legally tight mortgage to son.
Diworsification would be 3 stocks.
I see Red Lights everywhere but it doesnt stop me moving forward(not traffic lights).
I have no money in the bank as it would stay the same or diminish

[stoploss]

I see Red lights flashing for most of the NZX at current prices particularly the power companies. PS-Not into Diworsification and only hold 3 stocks(1 Divvy + 2 Growth)

Couta have a look back at your post # 1159 , MEL would have to fall 40 % from here to be at your "overpriced " level ....
"The market can stay irrational for longer than you can stay solvent" ......
Maybe something has changed ...that would be the trillions of money on negative yields around the world ...

[couta1]

Couta have a look back at your post # 1159 , MEL would have to fall 40 % from here to be at your "overpriced " level ....
"The market can stay irrational for longer than you can stay solvent" ......
Maybe something has changed ...that would be the trillions of money on negative yields around the world ... Each to their own, it all depends how much your willing to pay for your bunch of bananas, I'm happy to pay around $3/kilo not $5 odd/kilo. PS-I didn't look at that post as I live and post in the moment not the past.PPS-That saying is nonsense.

[Traderwannabe]

Thoughts on what a good value price for this is now?

[RTM]

Nice upgrade....25mil.
https://www.nzx.com/announcements/342811

[trader_jackson]

Forsyth out this morning saying MCY overvalued on basically every single metric (vs rest of the gentailers - who are arguably already overvalued as a sector)
Their 12 month target price indicates share price should really be about $1 lower than current.

[couta1]

Forsyth out this morning saying MCY overvalued on basically every single metric (vs rest of the gentailers - who are arguably already overvalued as a sector)
Their 12 month target price indicates share price should really be about $1 lower than current. For once I agree with them and I'd say $1.50 lower.

[Snow Leopard]

Back on the high side of $5.

Still my favourite power generator, and happy to hear that they are putting more wind mills up.

[Scrunch]

Huge trading volume today - 52.6m shares at $246m. The daily volume hasn't gone over about 6m in the last year (according to the Direct Broking charts). It may help explain a number of the other big volume - big value movements on the close.