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>Meridian Energy<br>Rain, Retail and Hedges Rescue FY21</h2>
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<p><strong>UNDERPERFORM</strong></p>
<p>Meridian Energy's (MEL) June 2021 operating statistics saw it round off a solid 4Q21, bouncing back from a record low 3Q21 performance. June rain was a significant factor, but ongoing retail performance and its hedge book also contributed to MEL delivering June 2021 EBITDAF of ~NZ$63m, +NZ$13m better than June 2020. We estimate FY21 EBITDAF will be NZ$727m, +NZ$37m better than our old forecast. However, we have left our dividend unchanged at 16.9cps and our target price unchanged at NZ$4.90. MEL still faces challenges in FY22 and in our view remains expensive. UNDERPERFORM.</p>
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<h3>What's changed?&nbsp;</h3>
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<li><strong>Earnings</strong>:&nbsp;FY21 EBITDAF increased +NZ$37m to NZ$727m, later forecasts effectively unchanged</li>
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<h3>Strong June 2021 rescues FY21</h3>
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<p>We estimate&nbsp;MEL's&nbsp;June 2021 NZ Energy Margin was NZ$94m, +NZ11m better than June 2020. June 2021 EBITDAF of ~NZ$63m was +NZ$13m better than June 2020. June was only the second month of FY21 that outperformed FY20.&nbsp;The main drivers of the strong performance were increased rainfall, continued retail improvements (MEL selling more at higher prices) and a strong hedge book performance, with June 2021 future contract close outs an +NZ$10m gain vs. the usual modest loss.</p>
<p>On Wednesday 25 August, we estimate MEL&nbsp;will report FY21 EBITDAF of NZ$727m, -NZ$127m lower than FY20, but +NZ$37m higher than our old forecast, with&nbsp;MEL's&nbsp;hedge performance driving more than half of the uplift. We have left our FY21 dividend unchanged at 16.9cps (final dividend of 11.2cps) as that represents the top end of&nbsp;MEL's&nbsp;free cash flow dividend payout ratio range of 75% to 90%.</p>
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<h3>FY22 outlook still has challenges</h3>
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<p>We have left our FY22 forecasts effectively unchanged — EBITDAF of NZ$732m and dividend of 16.9cps. Whilst the starting FY22 hydro position has improved significantly, wholesale electricity prices have pulled back materially (-25% to NZ$130/MWh). In addition, FY22 is the first full year of the lower NZAS contract, creating a significant earnings headwind relative to FY21.</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>Mark Robertson</strong></div>
<div><a href="mailto:mark.robertson@forsythbarr.co.nz" target="_blank" rel="noopener">mark.robertson@forsythbarr.co.<wbr>nz</a></div>
<div>+64 4 495 5264</div>
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Meridian Energy Rain, Retail and Hedges Rescue FY21

UNDERPERFORM
Meridian Energy's (MEL) June 2021 operating statistics saw it round off a solid 4Q21, bouncing back from a record low 3Q21 performance. June rain was a significant factor, but ongoing retail performance and its hedge book also contributed to MEL delivering June 2021 EBITDAF of ~NZ$63m, +NZ$13m better than June 2020. We estimate FY21 EBITDAF will be NZ$727m, +NZ$37m better than our old forecast. However, we have left our dividend unchanged at 16.9cps and our target price unchanged at NZ$4.90. MEL still faces challenges in FY22 and in our view remains expensive. UNDERPERFORM.


What's changed?&nbsp;



Earnings:&nbsp;FY21 EBITDAF increased +NZ$37m to NZ$727m, later forecasts effectively unchanged



Strong June 2021 rescues FY21


We estimate&nbsp;MEL's&nbsp;June 2021 NZ Energy Margin was NZ$94m, +NZ11m better than June 2020. June 2021 EBITDAF of ~NZ$63m was +NZ$13m better than June 2020. June was only the second month of FY21 that outperformed FY20.&nbsp;The main drivers of the strong performance were increased rainfall, continued retail improvements (MEL selling more at higher prices) and a strong hedge book performance, with June 2021 future contract close outs an +NZ$10m gain vs. the usual modest loss.
On Wednesday 25 August, we estimate MEL&nbsp;will report FY21 EBITDAF of NZ$727m, -NZ$127m lower than FY20, but +NZ$37m higher than our old forecast, with&nbsp;MEL's&nbsp;hedge performance driving more than half of the uplift. We have left our FY21 dividend unchanged at 16.9cps (final dividend of 11.2cps) as that represents the top end of&nbsp;MEL's&nbsp;free cash flow dividend payout ratio range of 75% to 90%.


FY22 outlook still has challenges


We have left our FY22 forecasts effectively unchanged — EBITDAF of NZ$732m and dividend of 16.9cps. Whilst the starting FY22 hydro position has improved significantly, wholesale electricity prices have pulled back materially (-25% to NZ$130/MWh). In addition, FY22 is the first full year of the lower NZAS contract, creating a significant earnings headwind relative to FY21.



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





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



Meridian Energy: Rain, Retail and Hedges Rescue FY21