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Forsyth Barr

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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Meridian Energy<br>Consortium Shells Out For MEL Australia</h2>
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<p><strong>UNDERPERFORM</strong></p>
<p>Following its strategic review, Meridian Energy (MEL) has announced the sale of its Australian business for A$729m (~NZ$752m). The sale is to a consortium made up of Shell, which will acquire the retail business (Powershop&nbsp;Australia) and Infrastructure Capital Group, which will take ownership of the generation assets. The sale price is towards the lower end of our estimated range of between NZ$670m and NZ$970m, and ~-2.5cps lower than our point estimate. That said, we believe this is a good outcome for MEL. As expected, MEL will provide an update on its capital structure at its 1H22 result in February 2022, including consideration of its dividend policy. While the transaction provides MEL with a solid return on its Australian venture, we retain our UNDERPERFORM rating, with interest rate and regulatory pressures still present.&nbsp;</p>
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<h3>Sale due to be completed in 3Q22, dividend policy update due 1H22 result announcement</h3>
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<p>The sale is due to be completed in 3Q22, subject to Shell receiving foreign investment approval. Announced alongside the sale was a three year agreement with Flux Federation, a MEL subsidiary, for Powershop Australia to provide retail software and call centre services to Shell. Whilst the agreement is currently financially immaterial for MEL, it presents an opportunity for Flux to demonstrate its capabilities to Shell, which has shown strong interest in expanding its retail electricity footprint.</p>
<p>MEL also announced it will provide an&nbsp;update on its capital structure and&nbsp;dividend policy&nbsp;at its 1H22 result of 23 February 2022.​​​​​​&nbsp;We estimate&nbsp;MEL will have ~12.5cps of surplus capital following the sale.&nbsp;Having reconsidered&nbsp;MEL's&nbsp;likely approach to returning capital, we&nbsp;now expect&nbsp;MEL to pay&nbsp;five&nbsp;2.5cps supplementary dividends over&nbsp;consecutive half year&nbsp;periods commencing in 2H22. This&nbsp;provides MEL with more balance sheet flexibility and is the approach MEL successfully used post-IPO. The only forecast changes relate to the revised special dividend assumption and the actual sale price of NZ$752m coming in -NZ$68m below our spot estimate.</p>
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Meridian Energy Consortium Shells Out For MEL Australia

UNDERPERFORM
Following its strategic review, Meridian Energy (MEL) has announced the sale of its Australian business for A$729m (~NZ$752m). The sale is to a consortium made up of Shell, which will acquire the retail business (Powershop&nbsp;Australia) and Infrastructure Capital Group, which will take ownership of the generation assets. The sale price is towards the lower end of our estimated range of between NZ$670m and NZ$970m, and ~-2.5cps lower than our point estimate. That said, we believe this is a good outcome for MEL. As expected, MEL will provide an update on its capital structure at its 1H22 result in February 2022, including consideration of its dividend policy. While the transaction provides MEL with a solid return on its Australian venture, we retain our UNDERPERFORM rating, with interest rate and regulatory pressures still present.&nbsp;


Sale due to be completed in 3Q22, dividend policy update due 1H22 result announcement


The sale is due to be completed in 3Q22, subject to Shell receiving foreign investment approval. Announced alongside the sale was a three year agreement with Flux Federation, a MEL subsidiary, for Powershop Australia to provide retail software and call centre services to Shell. Whilst the agreement is currently financially immaterial for MEL, it presents an opportunity for Flux to demonstrate its capabilities to Shell, which has shown strong interest in expanding its retail electricity footprint.
MEL also announced it will provide an&nbsp;update on its capital structure and&nbsp;dividend policy&nbsp;at its 1H22 result of 23 February 2022.​​​​​​&nbsp;We estimate&nbsp;MEL will have ~12.5cps of surplus capital following the sale.&nbsp;Having reconsidered&nbsp;MEL's&nbsp;likely approach to returning capital, we&nbsp;now expect&nbsp;MEL to pay&nbsp;five&nbsp;2.5cps supplementary dividends over&nbsp;consecutive half year&nbsp;periods commencing in 2H22. This&nbsp;provides MEL with more balance sheet flexibility and is the approach MEL successfully used post-IPO. The only forecast changes relate to the revised special dividend assumption and the actual sale price of NZ$752m coming in -NZ$68m below our spot estimate.


Meridian Energy: Consortium Shells Out For MEL Australia