Valuation Discussion: FY2017 Perspective
Quote:
Originally Posted by
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
Thin Air Capital, Special. Div. Adj. (FY2017 view)
Quote:
Originally Posted by
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.
Year |
New Thin Air Capital |
Post Tax Effect Multiplier |
Effective New Thin Air Capital |
Special Dividend |
Post Tax Effect Multiplier |
Surplus Capital Returned |
Surplus Capital Returned per Share |
FY2014 |
$40m |
0.72 |
$28.8m |
$0m |
1 |
$0m |
0c |
FY2015 |
$421m |
0.72 |
$303.1m |
$70m |
1 |
$70m |
5.0c |
FY2016 |
$136m |
0.72 |
$97.9m |
$35m |
1 |
$35m |
2.5c |
FY2017 |
$48m |
0.72 |
$34.6m |
$56m |
0.72 |
$40m |
2.9c |
Total |
|
|
$464m |
|
|
$145m |
10.4c |
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
Fraser's fantasy: Dream or reality? Part 1
Quote:
Originally Posted by
fish
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
Fraser's fantasy: Dream or reality? Part 2
Quote:
Originally Posted by
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
Fraser's fantasy: Dream or reality? Part 3
Quote:
Originally Posted by
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
Control of Operating Costs?
Quote:
Originally Posted by
fish
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.
Year |
Normalised 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
Will Mercury's 'thin air capital' evaporate into thin air? (FY2017 view)
Quote:
Originally Posted by
horus1
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 Year |
Average Operational Expenditure |
Wholesale Energy Price |
Net Average Production Volumes |
Post Tax Discount Rate |
Net Revaluation Movement |
FY2017 |
$158m /p.a. |
$70 to $104 /MWh |
6567 GWh/year |
7.5% to 7.9% |
$52m - $4m = $49m |
FY2016 |
$174m /p.a. |
$66 to $102 /MWh |
6556 GWh/year |
7.4% to 7.9% |
$137m - $1m = $136m |
FY2015 |
$168m /p.a. |
$63 to $97 /MWh |
7131 GWh/year |
7.5% to 7.9% |
$497m - $76m = $421m |
FY2014 |
$188m /p.a. |
$70 to $95 /MWh |
7107 GWh/year |
Unknown |
$40m - $0m = $40m |
FY2013 |
Unknown. |
Unknown |
Unknown |
Unknown |
$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
Are the special dividends asset stripping for cash?
Quote:
Originally Posted by
Snoopy
Year |
New Thin Air Capital |
Post Tax Effect Multiplier |
Effective New Thin Air Capital |
Special Dividend Per Share |
Post Tax Effect Multiplier |
Surplus Capital Returned |
FY2014 |
$40m |
0.72 |
$28.8m |
$0m |
1 |
$0m |
FY2015 |
$421m |
0.72 |
$303.1m |
$70m |
1 |
$70m |
FY2016 |
$136m |
0.72 |
$97.9m |
$35m |
1 |
$35m |
FY2017 |
$48m |
0.72 |
$34.6m |
$56m |
0.72 |
$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!
Quote:
Originally Posted by
Aaron
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
Investment Capex vs SIB Capex
Quote:
Originally Posted by
Dassets
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
Fraser's REAL growth engine for the next two years (forget EVs) !
Quote:
Originally Posted by
Aaron
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.
$14.4m / 1,400m = 1.0cps
That may not sound game changing, and it isn't. But it is five times more than the profit gain I expect to see from the incremental energy Mercury will sell to power EVs after four years (to the end of FY2021).
SNOOPY
'Thin Air' capital since the GFC (FY2017 Perspective)
Quote:
Originally Posted by
Snoopy
The figures I present below are from FY2009 onwards. This is the first year after the GFC hit, and power usage growth changed from its historical pattern.
All base figures are taken from the 'Statement of Change in Equity' Group figure for the appropriate year.
|
Revaluation Hydro & Thermal Assets ($m) |
Revaluation Other Generation Assets ($m) |
Total Revaluation ($m) |
Pre Tax Revaluation ($m) |
Pre Tax New Capital Per Share (c) |
2009 |
0 |
170.987 |
170.987 |
244 |
17.4 |
2010 |
200.900 |
60.250 |
261.150 |
373 |
26.6 |
2011 |
153.300 |
135.275 |
288.575 |
412 |
29.4 |
2012 |
119.520 |
2.880 |
122.240 |
170 |
12.1 |
2013 |
30.960 |
26 |
57 |
79 |
5.6 |
2014 |
4 |
25 |
29 |
40 |
2.9 |
Total |
|
|
929 |
|
94.0 |
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) |
2009 |
0 |
170.987 |
170.987 |
12.2 |
244 |
17.4 |
2010 |
200.900 |
60.250 |
261.150 |
18.7 |
373 |
26.6 |
2011 |
153.300 |
135.275 |
288.575 |
20.6 |
412 |
29.4 |
2012 |
119.520 |
2.880 |
122.240 |
8.7 |
170 |
12.1 |
2013 |
30.960 |
26 |
57 |
4.9 |
79 |
5.6 |
2014 |
4 |
25 |
29 |
2.1 |
40 |
2.9 |
2015 |
? |
? |
356 |
25.5 |
497 |
35.5 |
2016 |
? |
? |
=79+21 |
7.1 |
137 |
9.8 |
2017 |
? |
? |
38 |
2.7 |
52 |
3.7 |
Total |
|
|
|
102.2 |
|
less Special Dividends Declared (per share) |
|
|
|
-10.4 |
|
Residual Thin Air capital |
|
|
|
91.8 |
|
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
Effective vs Potential Power Generating capacity
Quote:
Originally Posted by
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
Share Buyback to be held as Treasury Stock
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).