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>Swings and Roundabouts&nbsp;in 4Q22</h2>
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<p><strong>NEUTRAL</strong></p>
<p>Genesis Energy's (GNE) 4Q22 operating statistics were a mixed bag with strong hydro generation volumes and retail gas margin growth offset by softer electricity and LPG margins plus a surprisingly weak realised oil price from&nbsp;Kupe. Overall, net gains in Energy EBITDAF are wholly offset by a similarly sized decrease for&nbsp;Kupe&nbsp;EBITDAF, leading to our GNE FY22 EBITDAF forecast broadly unchanged, down -NZ$1m to NZ$543m. Modest earnings increases to later year forecasts lift our target price by +3cps (+1%) to NZ$2.83 and we maintain our NEUTRAL rating.&nbsp;</p>
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<h3>What's changed?&nbsp;</h3>
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<li><strong>Earnings</strong>:&nbsp;FY22/FY23/FY24 EBITDAF changed -NZ$1m/+NZ$4m/+NZ$4m to NZ$443m/NZ$466m/NZ$430m</li>
<li><strong>Target price</strong>:&nbsp;Lifted +3cps (+1%) to NZ$2.83</li>
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<h3>Generation gains offset&nbsp;Kupe&nbsp;drop, remain marginally ahead of FY22 company guidance</h3>
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<p>A combination of strong 4Q22 hydro generation&nbsp;and less demand for its coal&nbsp;generation materially reduced&nbsp;GNE's&nbsp;portfolio cost of generation to NZ$53/MWh, down -47% on the prior period. The best performing product in the retail segment was gas, with the&nbsp;netback&nbsp;margin increasing +53% due to market increases in the cost of gas and carbon. This was partially offset in the retail market with softer electricity and LPG&nbsp;netback&nbsp;margins (down -7% and -10% respectively). The net impact of these is a +NZ$4m increase to our FY22 Energy EBITDAF forecast. However, this increase is wholly&nbsp;offset by a -NZ$5m drop in our FY22&nbsp;Kupe&nbsp;EBITDAF forecast, with&nbsp;GNE's&nbsp;oil hedging policy working against it in 4Q22. The averaged realised price declined -18% to NZ$72/barrel, despite the average Brent oil price rising +65% in USD terms to US$114/barrel. The net effect sees our overall FY22 EBITDA forecast broadly unchanged at NZ$443m. This compares to company guidance of NZ$430–440m which was also left unchanged. GNE will report its FY22 result on Friday, 19 August 2022.</p>
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<h3>Modest earnings increases in FY23</h3>
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<p>Looking ahead to FY23 and FY24 we have lifted our EBITDAF forecast slightly in each year (+NZ$4m each year to NZ$466m and NZ$430m respectively). We assume better 1H23 hydro generation in the North Island given current conditions (and less coal generation), better retail gas pricing and better realised oil prices as GNE moves past its lost cost hedges. This is partially offset by lower retail electricity and LPG margins.</p>
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Genesis Energy Swings and Roundabouts&nbsp;in 4Q22

NEUTRAL
Genesis Energy's (GNE) 4Q22 operating statistics were a mixed bag with strong hydro generation volumes and retail gas margin growth offset by softer electricity and LPG margins plus a surprisingly weak realised oil price from&nbsp;Kupe. Overall, net gains in Energy EBITDAF are wholly offset by a similarly sized decrease for&nbsp;Kupe&nbsp;EBITDAF, leading to our GNE FY22 EBITDAF forecast broadly unchanged, down -NZ$1m to NZ$543m. Modest earnings increases to later year forecasts lift our target price by +3cps (+1%) to NZ$2.83 and we maintain our NEUTRAL rating.&nbsp;


What's changed?&nbsp;



Earnings:&nbsp;FY22/FY23/FY24 EBITDAF changed -NZ$1m/+NZ$4m/+NZ$4m to NZ$443m/NZ$466m/NZ$430m
Target price:&nbsp;Lifted +3cps (+1%) to NZ$2.83



Generation gains offset&nbsp;Kupe&nbsp;drop, remain marginally ahead of FY22 company guidance


A combination of strong 4Q22 hydro generation&nbsp;and less demand for its coal&nbsp;generation materially reduced&nbsp;GNE's&nbsp;portfolio cost of generation to NZ$53/MWh, down -47% on the prior period. The best performing product in the retail segment was gas, with the&nbsp;netback&nbsp;margin increasing +53% due to market increases in the cost of gas and carbon. This was partially offset in the retail market with softer electricity and LPG&nbsp;netback&nbsp;margins (down -7% and -10% respectively). The net impact of these is a +NZ$4m increase to our FY22 Energy EBITDAF forecast. However, this increase is wholly&nbsp;offset by a -NZ$5m drop in our FY22&nbsp;Kupe&nbsp;EBITDAF forecast, with&nbsp;GNE's&nbsp;oil hedging policy working against it in 4Q22. The averaged realised price declined -18% to NZ$72/barrel, despite the average Brent oil price rising +65% in USD terms to US$114/barrel. The net effect sees our overall FY22 EBITDA forecast broadly unchanged at NZ$443m. This compares to company guidance of NZ$430–440m which was also left unchanged. GNE will report its FY22 result on Friday, 19 August 2022.


Modest earnings increases in FY23


Looking ahead to FY23 and FY24 we have lifted our EBITDAF forecast slightly in each year (+NZ$4m each year to NZ$466m and NZ$430m respectively). We assume better 1H23 hydro generation in the North Island given current conditions (and less coal generation), better retail gas pricing and better realised oil prices as GNE moves past its lost cost hedges. This is partially offset by lower retail electricity and LPG margins.


Genesis Energy: Swings and Roundabouts in 4Q22