New Zealand Professional Investment Services Firm, Forsyth Barr

Forsyth Barr

New Zealand Professional Investment Services Firm

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

Equity Bottom-Up

Genesis Energy Ltd. generates, transports, and retails electricity. The Company owns and operates hydroelectric generating stations to produce electricity, as well as explores natural gas and bottled liquefied petroleum gas.

<ul><li>An increasingly uncertain gas outlook has led us to downgrade our Genesis Energy (GNE) rating to NEUTRAL from OUTPERFORM.</li><li>Higher gas costs and gas generation portfolio restrictions has resulted in a lower and more uncertain earnings forecast from FY26 onwards.</li><li>In addition, despite GNE now operating its third Rankine unit, it does not appear to be in the position to take advantage of the situation as much as previously thought. </li></ul>

An increasingly uncertain gas outlook has led us to downgrade our Genesis Energy (GNE) rating to NEUTRAL from OUTPERFORM.Higher gas costs and gas generation portfolio restrictions has resulted in a lower and more uncertain earnings forecast from FY26 onwards.In addition, despite GNE now operating its third Rankine unit, it does not appear to be in the position to take advantage of the situation as much as previously thought. 

Genesis Energy - Costs Cut Outlook and Rating - 4Q24 Op Stats

Chorus Limited is a wholesale and retail telecommunications company.  The Company maintains and build the Chorus local access network which is made up of local telephone exchanges, cabinets and copper and fiber cables that connects New Zealand homes and businesses throughout the country.

<ul><li>The Commerce Commission (ComCom) released its draft decision for Chorus' (CNU) maximum allowable revenue (MAR) over its second regulatory period (RP2) covering CY25–CY28.</li><li>With the WACC and (draft) opex/capex known, the main unknown in the release is related to the treatment of depreciation and its expected wash-up from RP1.</li><li>Both were broadly in line with our (and we assume CNU's) expectations. </li></ul>

The Commerce Commission (ComCom) released its draft decision for Chorus' (CNU) maximum allowable revenue (MAR) over its second regulatory period (RP2) covering CY25–CY28.With the WACC and (draft) opex/capex known, the main unknown in the release is related to the treatment of depreciation and its expected wash-up from RP1.Both were broadly in line with our (and we assume CNU's) expectations. 

Channel Infrastructure NZ Ltd / Equity Bottom-Up

Channel Infrastructure NZ Limited operates a fuel infrastructure company. The Company owns and operates a petroleum pipeline from the refinery to a terminal at Marsden Point, in Northland. Channel Infrastructure produces motor gasoline, automotive and diesel fuels, aviation jet fuel, light and heavy fuel oils, and bitumen.

<ul><li>Channel Infrastructure (CHI) has confirmed that throughput volumes remain robust and growing, albeit the growth rate has eased, consistent with jet traffic plateauing.</li><li>Our forecasts and target price remain unchanged ahead of CHI's 1H24 result, to be released on 23 August 2024. Seadra continues to work on acquiring ex-refining assets, rolling its option three months to the end of September 2024.</li><li>We continue to assume Seadra completes the deal. </li></ul>

Channel Infrastructure (CHI) has confirmed that throughput volumes remain robust and growing, albeit the growth rate has eased, consistent with jet traffic plateauing.Our forecasts and target price remain unchanged ahead of CHI's 1H24 result, to be released on 23 August 2024. Seadra continues to work on acquiring ex-refining assets, rolling its option three months to the end of September 2024.We continue to assume Seadra completes the deal. 

Channel Infrastructure - Sticking to the Straight Road — 2Q24 Op Stats

Mercury NZ Ltd provides utility services. The Company generates and supplies electricity from hydro, geothermal, gas-fired, and wind power stations, as well as owns and manages bio-energy power plants. Mighty River Power serves customers throughout New Zealand.

<ul><li>Mercury's (MCY) 4Q24 operating statistics highlighted the challenges in the gas market as it was forced to acquire gas on the spot market at elevated prices.</li><li>Gas costs more than doubling relative to recent quarters is a key factor in our lower FY24 and FY25 earnings outlook.</li><li>The other key factor is 4Q24 wind and geothermal generation coming in below expectation, with low hydro storage negatively impacting our FY25 hydro generation assumption. </li></ul>

Mercury's (MCY) 4Q24 operating statistics highlighted the challenges in the gas market as it was forced to acquire gas on the spot market at elevated prices.Gas costs more than doubling relative to recent quarters is a key factor in our lower FY24 and FY25 earnings outlook.The other key factor is 4Q24 wind and geothermal generation coming in below expectation, with low hydro storage negatively impacting our FY25 hydro generation assumption. 

Mercury - Gas Scarcity Starts to Bite — 4Q24 Op Stats

Thematic (Sector/Industry)

<div id="m_3223007619533098753iubdj"><ul><li>New car sales, typically a barometer of economic activity, have fallen to anaemic levels in New Zealand as consumers feel the pain from cost inflation and high interest rates.</li><li>Used car sales have also been muted, although the second-hand market has generally been more resilient due to trading-down trends.</li><li>The outlook for the industry may finally be improving, with the RBNZ signalling rate cuts are on the horizon. </li></ul></div>

New car sales, typically a barometer of economic activity, have fallen to anaemic levels in New Zealand as consumers feel the pain from cost inflation and high interest rates.Used car sales have also been muted, although the second-hand market has generally been more resilient due to trading-down trends.The outlook for the industry may finally be improving, with the RBNZ signalling rate cuts are on the horizon. 

Forsyth Barr EV and Vehicle Digest Edition 5 — The Cycle Continues