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

Genesis Energy Keeping&nbsp;Kupe, For Now&nbsp;— 4Q21 Op Stats

OUTPERFORM
Genesis Energy (GNE) has decided to keep&nbsp;Kupe, for now, saying it sees more value in&nbsp;Kupe&nbsp;than what was being offered by bidders. It always looked like a tricky sales process, but the strategic rationale for GNE owning its stake in&nbsp;Kupe&nbsp;will get weaker over time as thermal generation plant is retired. The 4Q21 op stats were strong, with momentum in the retail business continuing and favourable June 2021 wholesale market conditions enabling GNE to lift FY21 EBITDAF guidance ~+NZ$15m to between NZ$405m and NZ$410m. We have lifted our FY21 EBITDAF forecast +NZ$16m to NZ$408m. GNE has good momentum in its business at present and we reiterate our OUTPERFORM rating.


GNE decides to keep&nbsp;Kupe


The big announcement from&nbsp;GNE's&nbsp;quarterly stats&nbsp;was its decision to keep&nbsp;Kupe. GNE stated that it sees greater value&nbsp;owning&nbsp;Kupe&nbsp;vs. accepting the best selling price. We aren't greatly surprised given the challenges of investing in oil &amp; gas upstream assets in New Zealand under current regulatory settings and the rising oil price over the past six months will have made agreeing&nbsp;on value more challenging. It is slightly disappointing a sale has not occurred, as a sale would have helped&nbsp;GNE's&nbsp;ESG credentials, and long-term GNE is not a natural owner&nbsp;of&nbsp;Kupe. We suspect GNE will try again to sell&nbsp;Kupe&nbsp;after an additional&nbsp;production well is drilled at some point in the next two&nbsp;to three&nbsp;years, as after that there will be more certainty around&nbsp;Kupe&nbsp;oil and gas reserve volumes.


Strong June helps lift 4Q21 stats and FY21 guidance


GNE had a strong finish to FY21, with June 2021 particularly strong as GNE benefitted from a bit more North Island hydro generation (a case of less worse), it was able to leverage the third Rankine coal/gas unit and take advantage of high wholesale electricity prices. The strong finish has seen GNE upgrade FY21 EBITDAF guidance ~+NZ$15m to between NZ$405m to NZ$410m. This is inclusive of an NZ$27m hit to earnings as GNE took up the carbon fixed price option, lifting the FY21 carbon expense in favour of reduced carbon costs in coming years. We have lifted our FY21 EBITDAF forecast +NZ$16m to NZ$408m, with the main driver of the increase a lower actual wind discount on the Waipipi wind contract for difference. GNE is reporting its FY21 result on Thursday, 26 August.&nbsp;


4Q21 momentum flowing into FY22


We expect GNE has had a good start to FY22, with favourable wholesale market conditions in the first part of July and retail earnings momentum flowing into FY22. We have lifted our FY22/FY23 EBITDAF forecast +NZ$9m/+NZ$6m respectively. The significant +NZ$42m step change from FY21 to FY22 is driven to a large extent by the fixed price carbon acquisition impacting FY21 earnings. Forecast changes beyond FY23 are limited as we expect wholesale electricity prices to trend down from recent highs.



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





Mark Robertson
mark.robertson@forsythbarr.co.nz
+64 4 495 5264



Genesis Energy: Keeping Kupe, For Now — 4Q21 Op Stats