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).

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.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Genesis Energy<br>Fast FY21 Finish Foiled</h2>
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<p><strong>OUTPERFORM</strong></p>
<p>After a very strong 1H21, 3Q21 was significantly more challenging with Genesis Energy (GNE) unable to capitalise on the high wholesale electricity prices despite running its Rankine Units hard. GNE was slightly short generation during 3Q21. We have trimmed our FY21 EBITDAF forecast -NZ$5m to NZ$414m, slightly below GNE's guidance range. Whilst we have trimmed GNE's target price -10cps (-2.6%) to NZ$3.75 we retain our OUTPERFORM rating as GNE offers good value and an attractive dividend.</p>
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<h3>What's changed?&nbsp;</h3>
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<li><strong>Earnings</strong>:&nbsp;FY21/FY22/FY23 EBITDAF reduced -NZ$5m/-NZ$7m/-NZ$11m to NZ$414m/NZ$434m/NZ$424m respectively</li>
<li><strong>Target price</strong>:&nbsp;Reduced -10cps (-2.6%) to NZ$3.75/share</li>
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<h3>Challenging 3Q21 after strong 1H21</h3>
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<p>An unexpected Kupe outage coinciding with very low North Island hydro generation and market making losses impacted 3Q21. In addition, the ongoing gas supply issues have reduced GNE's ability to run its gas-fired Unit 5. After a strong 1H21, 3Q21 has proved very challenging and even though it has been running its third Rankine Unit, GNE ended up slightly short generation in 3Q21. In the current market, it is necessary to be long generation for a strong earnings performance.</p>
<p>The retail performance was generally solid, although it was softer than earlier quarters, with the electricity and gas&nbsp;netback&nbsp;increases lower than prior quarters and the LPG&nbsp;netback&nbsp;falling -10%. With GNE holding off retail price increases, we expect the electricity&nbsp;netback&nbsp;to&nbsp;flatline&nbsp;or slightly decline in coming quarters.</p>
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<h3>Forecast changes reflect difficult 3Q21, softer than expected retail outlook</h3>
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<p>Short-term earnings have been negatively&nbsp;affected by the 3Q21 challenges. We have reduced our FY21 EBITDAF forecast ​​-NZ$5m to NZ$414m. Our revised forecast is slightly below&nbsp;GNE's&nbsp;FY21 NZ$415m to NZ$425m guidance range. We estimate the earnings effects of the 3Q21 difficulties is greater than NZ$10m but barring other unforeseen issues, GNE should be able to claw back some of the lost earnings in 4Q21.</p>
<p>Our FY22 and FY23 forecasts are also down, due to a lower (-1.6%) retail electricity price assumption (GNE has not increased retail electricity prices in 2021), a reduction (-5.6%) in commercial volumes indicating GNE has backed off that market slightly and an increase (+10%) in coal costs.</p>
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<div><strong>Andrew Harvey-Green</strong></div>
<div><a href="mailto:andrew.harvey-green@forsythbarr.co.nz" target="_blank" rel="noopener">andrew.harvey-green@<wbr>forsythbarr.co.nz</a></div>
<div>+64 4 495 8185</div>
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<div><strong>Scott Anderson</strong></div>
<div><a href="mailto:scott.anderson@forsythbarr.co.nz" target="_blank" rel="noopener">scott.anderson@forsythbarr.co.<wbr>nz</a></div>
<div>+64 4 914 2219</div>
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Genesis Energy Fast FY21 Finish Foiled

OUTPERFORM
After a very strong 1H21, 3Q21 was significantly more challenging with Genesis Energy (GNE) unable to capitalise on the high wholesale electricity prices despite running its Rankine Units hard. GNE was slightly short generation during 3Q21. We have trimmed our FY21 EBITDAF forecast -NZ$5m to NZ$414m, slightly below GNE's guidance range. Whilst we have trimmed GNE's target price -10cps (-2.6%) to NZ$3.75 we retain our OUTPERFORM rating as GNE offers good value and an attractive dividend.


What's changed?&nbsp;



Earnings:&nbsp;FY21/FY22/FY23 EBITDAF reduced -NZ$5m/-NZ$7m/-NZ$11m to NZ$414m/NZ$434m/NZ$424m respectively
Target price:&nbsp;Reduced -10cps (-2.6%) to NZ$3.75/share



Challenging 3Q21 after strong 1H21


An unexpected Kupe outage coinciding with very low North Island hydro generation and market making losses impacted 3Q21. In addition, the ongoing gas supply issues have reduced GNE's ability to run its gas-fired Unit 5. After a strong 1H21, 3Q21 has proved very challenging and even though it has been running its third Rankine Unit, GNE ended up slightly short generation in 3Q21. In the current market, it is necessary to be long generation for a strong earnings performance.
The retail performance was generally solid, although it was softer than earlier quarters, with the electricity and gas&nbsp;netback&nbsp;increases lower than prior quarters and the LPG&nbsp;netback&nbsp;falling -10%. With GNE holding off retail price increases, we expect the electricity&nbsp;netback&nbsp;to&nbsp;flatline&nbsp;or slightly decline in coming quarters.


Forecast changes reflect difficult 3Q21, softer than expected retail outlook


Short-term earnings have been negatively&nbsp;affected by the 3Q21 challenges. We have reduced our FY21 EBITDAF forecast ​​-NZ$5m to NZ$414m. Our revised forecast is slightly below&nbsp;GNE's&nbsp;FY21 NZ$415m to NZ$425m guidance range. We estimate the earnings effects of the 3Q21 difficulties is greater than NZ$10m but barring other unforeseen issues, GNE should be able to claw back some of the lost earnings in 4Q21.
Our FY22 and FY23 forecasts are also down, due to a lower (-1.6%) retail electricity price assumption (GNE has not increased retail electricity prices in 2021), a reduction (-5.6%) in commercial volumes indicating GNE has backed off that market slightly and an increase (+10%) in coal costs.



Andrew Harvey-Green
andrew.harvey-green@forsythbarr.co.nz
+64 4 495 8185





Scott Anderson
scott.anderson@forsythbarr.co.nz
+64 4 914 2219



Genesis Energy

Genesis Energy: Fast FY21 Finish Foiled