Mercury NZ Spot Prices Rose In September Quarter; FY20 EBITDAF Guidance Revised

Mercury NZ Spot prices rose in September Quarter

On 21 October 2019, the benchmark index S&P/ ASX 200 last traded at 6649.5 points, reflecting a decline of 0.0% from its last close. In the below article, we would be discussing one of the well-known utilities sector company Mercury NZ Limited, which has experienced an immense growth in the latest quarter, i.e. Sep 2019 (Q1 FY20) as well as in the financial year 2019, providing a decent return to its shareholders.

Mercury NZ Limited (ASX: MCY) is present in the market with a mission to provide energy freedom and purpose to provide New Zealand natives with an inspiration to enjoy energy in a more wonderful way.

Rise in Spot prices in the quarter

Recently, the company, through a release updated the market participants with its performance for the first quarter of FY2020 ended 30 September 2019 and outlined the following pointers:

  • During the quarter, the company witnessed a rise in spot prices due to the response of the market to below-average inflows along with the;
  • Major thermal fuel and generation outages, which have been scheduled for Q2 FY20. The company further added that the average spot price reached a record of $125/MWh and $112/MWh at Otahuhu and Benmore, respectively.
  • Mercury experienced a decline in National hydro storage to 83 percent from 106 percent of average over the quarter period, driven by South Island inflows being 102GWh below average.
  • Waikato catchment inflows stood at 72GWh, which were above average during the three months period to the quarter ending 30th September 2019 and reflected uncorrelated nature of North Island inflows.
  • The company’s hydro generation of 1,214GWh have been reduced by 232GWh in Q1 FY20 as compared to pcp but stood above average at 21GWh. However, the decline in the volumes of hydro generation allowed a rise in utilisation of Waikato Hydro Scheme flexibility.
  • MCY witnessed a favourable decline in LWAP/GWAP ratio from 1.07 in Q1 FY19 period to 1.04 in the most recent quarter.
Bias towards C&I Sales
  • With respect to wholesale market conditions, the company is managing its electricity sales portfolio anticipated to persist with FY21 and FY22 Otahuhu futures prices rising to $112/MWh and $103/MWh respectively (as on 30 September 2019). This has witnessed MCY’s bias sales towards the higher-yielding spot and Commercial & Industrial (C&I) channels.
  • In accordance with strategy, the company has declined discounted mass-market acquisition activity, while maintaining its focus on rewarding existing customer.
  • The proportion of customers, which were acquired on discounted rates, have witnessed a decline to 28% in Q1 FY20 in comparison to 57% of pcp.
  • However, the group has experienced a rise to 22.0 percent in September 2019 quarter from 19.9 percent in Q1 FY19 in large part because of the exit of the Farm Source arrangement.
Fraser Whineray to leave as CEO
  • As per the release dated 8th October 2019, the company announced that after more than eleven years of service, including the last five years as Chief Executive officer, Fraser Whineray would be leaving the company in 2020.
  • Mr Fraser would be joining the management of Fonterra as Chief Operating Office, which happens to be a newly created role where he would be adopting the broad responsibilities for the co-operative.
Statistics of Financial Year 2019

In August, the company updated the market with its full-year 2019 report, wherein it communicated about its operational and financial performance for FY19:

  • The management of the company was pleased with the overall performance of the business in comparison to the previous year’s record earnings. This followed the company implementing numerous strategic moves in order to place MCY for long-term sustainable growth.
  • The company achieved several milestones, which primarily include the sale of its Metrix smart metering business in consideration of $272 million. The milestone for FY19 also includes the announcement regarding Karapiro hydro station with a major refurbishment programme.
  • When it comes to FY19 financial performance, the operating earnings stood at $505 million, reflecting a fall of 11%. This has been affected by untimely wet climate throughout the Waikato catchment providing a path to an extremely dry phase from September.
  • It was stated that the yearly hydro production of 4,006GWh was in accordance with its extended-term average.
A look at Dividend
  • In the financial year 2019, the company has declared a final ordinary dividend, which amounted to 9.3 cps, fully imputed. This took the total ordinary dividend to the amount of 15.5 cps, fully imputed, with a rise of 2.6% in comparison to FY18. This reflects the company’s eleventh successive year of rise in ordinary dividend.
  • The TSR or total stakeholder returns of the company stood at 42.5 percent, which consists of a substantial share price appreciation, providing the valuation of $6.3 billion in the closed FY period, to the company.
Revised Guidance for FY20
  • As per the release dated 18th October 2019, the company updated the market with its revised guidance, in relation to EBITDAF to $510 million from $485 million (previous guidance) for FY20: this increase is primarily because of-
  • Changes to the composition of the company’s electricity sales with a rise in bias to higher-yielding spot market as well as commercial and industrial (C&I) channels.
  • An anticipated rise of 50 GWh in full-year projection of hydro generation to 4,070 GWh because of wetter than average weather in the Taupo region.
  • In addition, there was no change to previous guidance such as ordinary dividend amounting to 15.8 cps for FY20, reflecting a rise of 2% in comparison to FY19.
  • The company would keep on exploring some new methods with regards to inspire the shift to electrified conveyance for the extended-term advantage of the nation and for owners as well.

When it comes to the performance of the stock, Mercury NZ last traded at a price of $5.140 per share, with a fall of 1.154% on 21 October 2019. It witnessed a rise of 42.47% in the time frame of six months. MCY traded at P/E multiple of 20.740x and annual dividend yield was recorded at 2.81%.


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