New Zealand Professional Investment Services Firm

Forsyth Barr

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).

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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Genesis Energy<br>Downgrade to NEUTRAL as Interest Rates Bite</h2>
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<p><strong>NEUTRAL</strong></p>
<p>We are downgrading Genesis Energy (GNE) to NEUTRAL from OUTPERFORM as we see further sector downside risk from the lift in interest rates and have rising concerns about GNE's earnings after FY24. The review of electricity sector metrics highlights that GNE's Yr3 consensus cash yield is -12% lower and Yr3 consensus EV/EBITDAF +10% greater than in 2018. However, we believe GNE faces a challenging back end of the decade as its thermal generation winds downs and as Kupe earnings start to decline. The recalibration of our market multiple valuation metrics has resulted in an -NZ$0.30 reduction in our target price to NZ$3.10 and our revised rating is NEUTRAL.</p>
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<h3>What's changed?</h3>
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<li><strong>Target price</strong>:&nbsp;Decreased -NZ$0.30 (-8.8%) to NZ$3.10</li>
<li><strong>Rating</strong>:&nbsp;Downgraded to NEUTRAL from OUTPERFORM</li>
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<h3>GNE trading on higher multiples than 2018 with long-term earnings concerns coming into focus when using FY24 earnings</h3>
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<p>The biggest impact on our GNE valuation comes from a reassessment of&nbsp;GNE's&nbsp;trading multiples for its electricity business (Kupe's&nbsp;value is added separately). Using FY24 earnings (which we currently forecast as peak earnings for GNE), applying an EBITDAF less&nbsp;capex&nbsp;multiple and recalibrating the target multiples has resulted in a material reduction in our market multiple based valuation, down -20.5% (-NZ$0.71) to NZ$2.76.</p>
<p>Also a consideration in our rating downgrade is GNE's more challenging outlook. Whilst Kupe has been a strong performer for GNE, as an oil &amp; gas asset, it has a finite life and we expect earnings to decline during the latter part of the decade. In addition, GNE is tasked with phasing out its thermal generation plant, whilst generating a return on those assets, which will be a challenge. On the positive side, the negative sentiment towards GNE from an ESG perspective should ease over the decade and its dividend remains the most attractive in the sector, albeit long-term sustainability beyond FY26 remains a question.</p>
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Genesis Energy Downgrade to NEUTRAL as Interest Rates Bite

NEUTRAL
We are downgrading Genesis Energy (GNE) to NEUTRAL from OUTPERFORM as we see further sector downside risk from the lift in interest rates and have rising concerns about GNE's earnings after FY24. The review of electricity sector metrics highlights that GNE's Yr3 consensus cash yield is -12% lower and Yr3 consensus EV/EBITDAF +10% greater than in 2018. However, we believe GNE faces a challenging back end of the decade as its thermal generation winds downs and as Kupe earnings start to decline. The recalibration of our market multiple valuation metrics has resulted in an -NZ$0.30 reduction in our target price to NZ$3.10 and our revised rating is NEUTRAL.


What's changed?



Target price:&nbsp;Decreased -NZ$0.30 (-8.8%) to NZ$3.10
Rating:&nbsp;Downgraded to NEUTRAL from OUTPERFORM



GNE trading on higher multiples than 2018 with long-term earnings concerns coming into focus when using FY24 earnings


The biggest impact on our GNE valuation comes from a reassessment of&nbsp;GNE's&nbsp;trading multiples for its electricity business (Kupe's&nbsp;value is added separately). Using FY24 earnings (which we currently forecast as peak earnings for GNE), applying an EBITDAF less&nbsp;capex&nbsp;multiple and recalibrating the target multiples has resulted in a material reduction in our market multiple based valuation, down -20.5% (-NZ$0.71) to NZ$2.76.
Also a consideration in our rating downgrade is GNE's more challenging outlook. Whilst Kupe has been a strong performer for GNE, as an oil &amp; gas asset, it has a finite life and we expect earnings to decline during the latter part of the decade. In addition, GNE is tasked with phasing out its thermal generation plant, whilst generating a return on those assets, which will be a challenge. On the positive side, the negative sentiment towards GNE from an ESG perspective should ease over the decade and its dividend remains the most attractive in the sector, albeit long-term sustainability beyond FY26 remains a question.


Genesis Energy: Downgrade to NEUTRAL as Interest Rates Bite