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>Repowering&nbsp;— Investor&nbsp;Day 2020 Take-Outs</h2>
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<p><strong>OUTPERFORM</strong></p>
<p>Genesis Energy's&nbsp;(GNE) key 2020 Investor Day announcement was its commitment to reducing carbon emissions consistent with limiting warming to 1.5°C, meaning it will ramp up replacement of&nbsp;baseload&nbsp;thermal generation with renewable energy. Whilst its coal units will likely be in use for the next decade, it is a positive step, and along with the sale of&nbsp;Kupe&nbsp;will see&nbsp;GNE's&nbsp;environmental credentials improve. On the earnings front,&nbsp;GNE's&nbsp;FY24 EBITDAF target is ~NZ$445m, consistent with our pre NZAS-closing forecast. We retain our OUTPERFORM rating —&nbsp;GNE&nbsp;offers better value than several of its peers and its intention to reduce carbon emissions will only help.</p>
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<h3>FY24 earnings goal in line with expectations (assuming NZAS stays)</h3>
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<p>GNE has indicated a target of growing EBITDAF +NZ$45m from FY21 to FY24, NZ$15m from retail and NZ$30m from its wholesale division. Assuming an FY21 NZ$400m starting point, FY24 NZ$445m EBITDAF target is consistent with our pre NZAS-closure- announcement forecast of NZ$443m. Most of the growth comes from legacy gas contracts rolling off in FY22. GNE's expected dividend path is more of the same - ~1% growth (or 0.15 to 0.25cps).</p>
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<h3>Repowering&nbsp;with&nbsp;renewables&nbsp;the theme for the 2020s</h3>
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<p>GNE reiterated its message from its FY20 result presentation — by 2030 it will&nbsp;replace&nbsp;2,650GWh of&nbsp;baseload&nbsp;thermal generation with renewable electricity, most of it likely to be contracted. All other things being equal, if GNE can achieve that goal then 81% of&nbsp;GNE's&nbsp;generation will be renewable — similar to Contact Energy (CEN).&nbsp; NZ will be 93% renewable.&nbsp;The new information today is&nbsp;GNE's&nbsp;commitment to reducing carbon emissions to the +1.5°C global warming path by 2025. That means&nbsp;GNE needs to contract or build 1,800GWh of new renewable generation (which is 68% of the 2030 goal), with&nbsp;Waipipi&nbsp;contributing 450GWh of that. GNE has previously talked to supporting&nbsp;Tauhara&nbsp;and a solar project, but we estimate another two projects will be required to achieve the 1,800GWh goal. To that end, GNE has recently received&nbsp;expressions of interest to supply renewable energy from new projects&nbsp;totalling&nbsp;7,500GWh of potential renewable energy (wind/solar/geothermal) —&nbsp;none of the projects were from the other big three generator/retailers. Whilst the project quality is unknown, it again highlights New&nbsp;Zealand's&nbsp;raw renewable energy resources and raises further questions on the sustainability of current wholesale electricity prices.</p>
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<h3>Retail goals more of the same — data/technology project to lift&nbsp;capex</h3>
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<p>GNE's three core FY24 retail goals are to; reduce absolute churn -2% by continuing to improve and enhance retail products to improve the customer experience, thus create more loyalty; focus on SME to increase volumes +7% (GNE has tried this in the past, so, in effect this is a second attempt); grow LPG volumes +35%. The latter two goals, if successful, are better than our current expectations, although the earnings uplift is small. GNE has also indicated it is undertaking a retail data/billing/sales project which will likely result in capex tracking higher than FY21 (and higher than our current forecasts).</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 Repowering&nbsp;— Investor&nbsp;Day 2020 Take-Outs

OUTPERFORM
Genesis Energy's&nbsp;(GNE) key 2020 Investor Day announcement was its commitment to reducing carbon emissions consistent with limiting warming to 1.5°C, meaning it will ramp up replacement of&nbsp;baseload&nbsp;thermal generation with renewable energy. Whilst its coal units will likely be in use for the next decade, it is a positive step, and along with the sale of&nbsp;Kupe&nbsp;will see&nbsp;GNE's&nbsp;environmental credentials improve. On the earnings front,&nbsp;GNE's&nbsp;FY24 EBITDAF target is ~NZ$445m, consistent with our pre NZAS-closing forecast. We retain our OUTPERFORM rating —&nbsp;GNE&nbsp;offers better value than several of its peers and its intention to reduce carbon emissions will only help.


FY24 earnings goal in line with expectations (assuming NZAS stays)


GNE has indicated a target of growing EBITDAF +NZ$45m from FY21 to FY24, NZ$15m from retail and NZ$30m from its wholesale division. Assuming an FY21 NZ$400m starting point, FY24 NZ$445m EBITDAF target is consistent with our pre NZAS-closure- announcement forecast of NZ$443m. Most of the growth comes from legacy gas contracts rolling off in FY22. GNE's expected dividend path is more of the same - ~1% growth (or 0.15 to 0.25cps).


Repowering&nbsp;with&nbsp;renewables&nbsp;the theme for the 2020s


GNE reiterated its message from its FY20 result presentation — by 2030 it will&nbsp;replace&nbsp;2,650GWh of&nbsp;baseload&nbsp;thermal generation with renewable electricity, most of it likely to be contracted. All other things being equal, if GNE can achieve that goal then 81% of&nbsp;GNE's&nbsp;generation will be renewable — similar to Contact Energy (CEN).&nbsp; NZ will be 93% renewable.&nbsp;The new information today is&nbsp;GNE's&nbsp;commitment to reducing carbon emissions to the +1.5°C global warming path by 2025. That means&nbsp;GNE needs to contract or build 1,800GWh of new renewable generation (which is 68% of the 2030 goal), with&nbsp;Waipipi&nbsp;contributing 450GWh of that. GNE has previously talked to supporting&nbsp;Tauhara&nbsp;and a solar project, but we estimate another two projects will be required to achieve the 1,800GWh goal. To that end, GNE has recently received&nbsp;expressions of interest to supply renewable energy from new projects&nbsp;totalling&nbsp;7,500GWh of potential renewable energy (wind/solar/geothermal) —&nbsp;none of the projects were from the other big three generator/retailers. Whilst the project quality is unknown, it again highlights New&nbsp;Zealand's&nbsp;raw renewable energy resources and raises further questions on the sustainability of current wholesale electricity prices.


Retail goals more of the same — data/technology project to lift&nbsp;capex


GNE's three core FY24 retail goals are to; reduce absolute churn -2% by continuing to improve and enhance retail products to improve the customer experience, thus create more loyalty; focus on SME to increase volumes +7% (GNE has tried this in the past, so, in effect this is a second attempt); grow LPG volumes +35%. The latter two goals, if successful, are better than our current expectations, although the earnings uplift is small. GNE has also indicated it is undertaking a retail data/billing/sales project which will likely result in capex tracking higher than FY21 (and higher than our current forecasts).



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: Repowering — Investor Day 2020 Take-Outs