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

<ul><li>Evidence of Mercury's (MCY) challenging 1Q25 is apparent in the operating statistics, with hydro generation well below average and gas costs continuing to rise higher.</li><li>The recovery in hydro storage during late August and September 2024 has enabled MCY to lift FY25 hydro generation guidance and earnings expectations.</li><li>After a difficult 1Q25, MCY is better positioned for the remainder of FY25, with possible La Nina conditions a likely positive for North Island hydro generation. OUTPERFORM.</li></ul>

Evidence of Mercury's (MCY) challenging 1Q25 is apparent in the operating statistics, with hydro generation well below average and gas costs continuing to rise higher.The recovery in hydro storage during late August and September 2024 has enabled MCY to lift FY25 hydro generation guidance and earnings expectations.After a difficult 1Q25, MCY is better positioned for the remainder of FY25, with possible La Nina conditions a likely positive for North Island hydro generation. OUTPERFORM.

Mercury - Bumpy Waters — 1Q25 Operating Statistics

<ul><li>Disappointing FY25 guidance, relative to market expectations, dominated Mercury’s FY24 result.</li><li>MCY is being exposed to tail risks not seen in the market since 2008, with the extreme market conditions impacting MCY’s 1Q25 performance.</li><li>The cost of replacing hydro generation is higher than ever before, and that is the driver of the EBITDAF and dividend misses. </li></ul>

Disappointing FY25 guidance, relative to market expectations, dominated Mercury’s FY24 result.MCY is being exposed to tail risks not seen in the market since 2008, with the extreme market conditions impacting MCY’s 1Q25 performance.The cost of replacing hydro generation is higher than ever before, and that is the driver of the EBITDAF and dividend misses. 

Mercury - Holding on to a Taniwha Tail — FY24 Result

<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

<ul><li>Mercury's (MCY) 3Q24 operating metrics are best described as steady, with the benefits of its new wind farms evident as they offset softer (but still above average) hydro generation.</li><li>Pricing across all product categories remains strong and our upwards forecast movements is due to a combination of a higher forward wholesale electricity price, and gas and telco prices rising faster than expected.</li><li>We raise our target price +15cps (+2.9%) to NZ$5.35, but retain our UNDERPERFORM rating as MCY remains expensive. </li></ul>

Mercury's (MCY) 3Q24 operating metrics are best described as steady, with the benefits of its new wind farms evident as they offset softer (but still above average) hydro generation.Pricing across all product categories remains strong and our upwards forecast movements is due to a combination of a higher forward wholesale electricity price, and gas and telco prices rising faster than expected.We raise our target price +15cps (+2.9%) to NZ$5.35, but retain our UNDERPERFORM rating as MCY remains expensive. 

Mercury - 3Q24 Op Stats — Favourable Tailwinds External Inbox Updates

<ul><li>Appearances can be deceptive. Mercury (MCY) reported a strong 1H24 EBITDAF result of NZ$434m, albeit at first glance it appears soft vs. 1H23 and our expectations.</li><li>In addition, the FY24 guidance upgrade appears very strong, but rising opex is masked by gains that cannot be banked on to repeat in future years.</li><li>Whilst we lift our FY24 EBITDAF forecast +5.3%, as FY24 is tracking ahead of expectations, we lower our target price -8cps (-1.5%) on higher long-term opex and stay-in-business capex assumptions. </li></ul>

Appearances can be deceptive. Mercury (MCY) reported a strong 1H24 EBITDAF result of NZ$434m, albeit at first glance it appears soft vs. 1H23 and our expectations.In addition, the FY24 guidance upgrade appears very strong, but rising opex is masked by gains that cannot be banked on to repeat in future years.Whilst we lift our FY24 EBITDAF forecast +5.3%, as FY24 is tracking ahead of expectations, we lower our target price -8cps (-1.5%) on higher long-term opex and stay-in-business capex assumptions. 

Mercury - Trading Comes With a Cost — 1H24 Result

New Zealand

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.

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Mercury NZ Ltd (MCY NZ)

Mercury - Bumpy Waters — 1Q25 Operating Statistics

Evidence of Mercury's (MCY) challenging 1Q25 is apparent in the operating statistics, with hydro generation well below average and gas costs...

Forsyth Barr

Mercury - Holding on to a Taniwha Tail — FY24 Result

MCY is being exposed to tail risks not seen in the market since 2008, with the extreme market conditions impacting MCY’s 1Q25 performance.

Forsyth Barr

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

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...

Forsyth Barr

Mercury - 3Q24 Op Stats — Favourable Tailwinds External Inbox Updates

Mercury's (MCY) 3Q24 operating metrics are best described as steady, with the benefits of its new wind farms evident as they offset softer (but...

Forsyth Barr

Mercury - Trading Comes With a Cost — 1H24 Result

Appearances can be deceptive. Mercury (MCY) reported a strong 1H24 EBITDAF result of NZ$434m, albeit at first glance it appears soft vs. 1H23 and...

Forsyth Barr

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