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.

Thematic (Sector/Industry)

<ul><li>January 2024 saw a good top-up of hydro lakes, easing near-term hydro generation concerns, strong electricity demand growth and EV sales collapsing to pre-Clean Car Discount levels.</li><li>Share price performance was subdued, with two stocks outperforming and three underperforming.</li><li>We continue to view the sector as expensive with the Electricity Authority’s (EA) generation development survey indicating more solar projects are being built (or are about to be built) than has been publicly announced, suggesting a short-term overbuild risk is real.</li></ul>

January 2024 saw a good top-up of hydro lakes, easing near-term hydro generation concerns, strong electricity demand growth and EV sales collapsing to pre-Clean Car Discount levels.Share price performance was subdued, with two stocks outperforming and three underperforming.We continue to view the sector as expensive with the Electricity Authority’s (EA) generation development survey indicating more solar projects are being built (or are about to be built) than has been publicly announced, suggesting a short-term overbuild risk is real.

Power Points - Clean Car Discount Cuts Sales—February 2024

<ul><li>We expect combined 1H24 EBITDAF to be slightly down on 1H23, but the prior period benefitted from record-high North Island hydro generation.</li><li>That has meant sector cost of generation has increased, particularly impacting Genesis Energy (GNE). T</li><li>he standout performer will be Contact Energy (CEN) as it reports record half year EBITDAF, however, its outlook for the remainder of 2H24 is likely to be the most subdued due to the effects of its Tauhara geothermal project not coming on line as expected. </li></ul>

We expect combined 1H24 EBITDAF to be slightly down on 1H23, but the prior period benefitted from record-high North Island hydro generation.That has meant sector cost of generation has increased, particularly impacting Genesis Energy (GNE). The standout performer will be Contact Energy (CEN) as it reports record half year EBITDAF, however, its outlook for the remainder of 2H24 is likely to be the most subdued due to the effects of its Tauhara geothermal project not coming on line as expected. 

Electricity Sector - Earnings Growth Stalls — 1H24 Sector Preview

<ul><li>December 2023 saw hydro lake levels fall, wholesale electricity prices rise, and more thermal generation being used; the market will be keen to avoid a dry January.</li><li>Whilst it is too early to be overly concerned, NIWA’s climate outlook points to below average river flows being likely to the end of March 2024.</li><li>We view Genesis Energy (GNE) as the main beneficiary if conditions remain dry, with Contact Energy (CEN) the most exposed. </li></ul>

December 2023 saw hydro lake levels fall, wholesale electricity prices rise, and more thermal generation being used; the market will be keen to avoid a dry January.Whilst it is too early to be overly concerned, NIWA’s climate outlook points to below average river flows being likely to the end of March 2024.We view Genesis Energy (GNE) as the main beneficiary if conditions remain dry, with Contact Energy (CEN) the most exposed. 

Power Points - Dry January Not What the Sector Wants — January 2024

<div><div><div><div><ul><li>New build was the key theme in November 2023. The month saw the completion of Mercury’s (MCY) Kaiwera Downs I wind farm, first power from Meridian Energy’s (MEL) Harapaki wind farm, and first power from Lodestone’s Kaitaia solar farm, New Zealand’s first grid scale solar farm.</li><li>The month also saw Contact Energy (CEN) announce substantial delays and cost increases at its Tauhara geothermal plant.</li><li>Looking to 2024, we expect 2.0TWh+ of generation to start construction, which is in addition to the ~3.4TWh under construction. </li></ul></div></div></div></div>

New build was the key theme in November 2023. The month saw the completion of Mercury’s (MCY) Kaiwera Downs I wind farm, first power from Meridian Energy’s (MEL) Harapaki wind farm, and first power from Lodestone’s Kaitaia solar farm, New Zealand’s first grid scale solar farm.The month also saw Contact Energy (CEN) announce substantial delays and cost increases at its Tauhara geothermal plant.Looking to 2024, we expect 2.0TWh+ of generation to start construction, which is in addition to the ~3.4TWh under construction. 

Power Points - Building Boom Set to Continue — Dec 2023

Equity Bottom-Up

<ul><li>Contact Energy (CEN) has announced that its 174MW Tauhara geothermal project has been delayed another ~six months: this is the fourth delay since the project commenced.</li><li>Total delays are now ~15 months with commissioning of a 152MW plant (the original plant capacity planned in 2021) now expected in September 2024, with full plant capacity not likely to be reached for another year.</li><li>We estimate the total EBITDAF impact from the delay is ~NZ$125m, which is in addition to the NZ$40m capex increase. We lower our target price -15cps (-2%) to NZ$7.35. NEUTRAL.</li></ul>

Contact Energy (CEN) has announced that its 174MW Tauhara geothermal project has been delayed another ~six months: this is the fourth delay since the project commenced.Total delays are now ~15 months with commissioning of a 152MW plant (the original plant capacity planned in 2021) now expected in September 2024, with full plant capacity not likely to be reached for another year.We estimate the total EBITDAF impact from the delay is ~NZ$125m, which is in addition to the NZ$40m capex increase. We lower our target price -15cps (-2%) to NZ$7.35. NEUTRAL.

New Zealand

Contact Energy Limited is a diversified and integrated energy company which focuses on the generation of electricity and the sale of electricity and gas in New Zealand.

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Contact Energy (CEN NZ)

Power Points - Clean Car Discount Cuts Sales—February 2024

January 2024 saw a good top-up of hydro lakes, easing near-term hydro generation concerns, strong electricity demand growth and EV sales collapsing...

Forsyth Barr

Electricity Sector - Earnings Growth Stalls — 1H24 Sector Preview

We expect combined 1H24 EBITDAF to be slightly down on 1H23, but the prior period benefitted from record-high North Island hydro generation.

Forsyth Barr

Power Points - Dry January Not What the Sector Wants — January 2024

December 2023 saw hydro lake levels fall, wholesale electricity prices rise, and more thermal generation being used; the market will be keen to...

Forsyth Barr

Power Points - Building Boom Set to Continue — Dec 2023

Looking to 2024, we expect 2.0TWh+ of generation to start construction, which is in addition to the ~3.4TWh under construction.

Forsyth Barr

Contact Energy - Tauhara in Hot Water

Contact Energy (CEN) has announced that its 174MW Tauhara geothermal project has been delayed another ~six months: this is the fourth delay since...

Forsyth Barr

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