GNE - Genesis Energy

[Shareguy]

DRP at $2.36 nice.

[Shareguy]

Craig's list of current value ideas includes Genesis Energy (GNE) –

The company's share price has been soft since it reported its results in August. While we acknowledge that there were a few aspects of the result which were modestly softer than market expectations (including a flat dividend), we see the weakness relative to its peers as overdone.
In August, GNE was removed from the MSCI small-cap index. This created additional technical selling pressure which we expect to ultimately subside. Certainly, the exposure to thermal generation (mostly gas with coal back up) will restrict some investors, but NZ's continued shift to renewable generation does create supply risk during periods of adverse hydrology (dry-year risk). The solution will likely point to a degree of thermal capacity, which we believe GNE is best placed to supply. On the ESG point, we note GNE has science-based targets in place and a strategy to displace its own thermal plant with both PPA's and some organic renewable development – 46% ownership of Kupe is likely a bigger detractor on this.
Overall, with good progress on its Future-gen strategy, potential to provide dry-year risk cover, and an attractive yield (~10%), GNE presents as an attractive complementary exposure to our core electricity sector holdings in portfolios. However, a new management team and GNE's current strategic review (more information expected in November.

Overweight $3.05

[Onemootpoint]

Given the actual position of the QE2 today, Ferg's analogy is even more apt than he theenks it eez.

Touché

[Waltzing]

well it and other might get   ...  actually take a beating apparently...

https://www.nzherald.co.nz/business/stand-off-why-the-nzx-may-be-next-in-line-for-double-digit-correction/UUZJJWA5AJEVZIG6A6BWFCMZAI/

[Onemootpoint]

Just posted this in 'bonds'.

Quite relevant here. Many have discussed this here and other gentailers.

[Waltzing]

Power generation is the future though isnt it... a country cant operate without power..

[Basil]

For those into this sort of thing there's lots of feel good ESG stuff in today's annual meeting speech's here http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/GNE/419909/405046.pdf
I remain with an impending sense of concern that the current level of dividend is going to be the "sacrificial lamb" in Malcolm John's new refreshed strategy to be announced in an investor day on 30 November.

[winner (n)]

No idea if this is good or bad

But did note head count up by 78 on a year ago ...no wonder earlier announcement said they are dispensing with the services of a few hundred ....... Staff just a consumable eh

And injuries are up as well

Marked PRICE SENSITIVE so must mean something


http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/GNE/420285/405498.pdf

[Basil]

I like how he is streamlining the business and looking for operational efficiencies, but we have the 10 year Govt bond rate continuing to climb inexorably higher and it's difficult to see how a company with no growth prospects can make headway with its share price against that very strong headwind so I am taking some brokers forecasts of fair value at just over $3 with a grain of salt.

[winner (n)]

From Market Wrap today ....a bit ominious

Brokers Forsyth Barr, in a research note, said the electricity sector appeared to have "defied gravity" over the past two years.

"Our analysis suggests the risk of a negative share price reset is rising with a growing risk of earnings downgrades – from 2027 onwards – and the return of a risk on environment favouring cyclical stocks over defensive yield stocks," it said.

[Shareguy]

Yes the relationship with interest rates historically is clearly broken. Can only assume share price holding up due to the strong growth. Going forward will that continue.

Fbar latest note favours both GNE and CNE at neutral. Suggests large drops from here and suggests the other electricity stocks are way over valued underperform.

November will be interesting. Stripping out costs can only go so far. They have a lot of staff and have increased this year. Interest rates and bond yields look higher for longer.  It's pleasing that retail numbers continue to increase. Restructuring costs short term then there is Kupe.

Unless there is a substantial cut to the divi (which there might be)I see this as good buying.

[Basil]

Yes the relationship with interest rates historically is clearly broken. Can only assume share price holding up due to the strong growth. Going forward will that continue.

Fbar latest note favours both GNE and CNE at neutral. Suggests large drops from here and suggests the other electricity stocks are way over valued underperform.

November will be interesting. Stripping out costs can only go so far. They have a lot of staff and have increased this year. Interest rates and bond yields look higher for longer.  It's pleasing that retail numbers continue to increase. Restructuring costs short term then there is Kupe.

Unless there is a substantial cut to the divi (which there might be)I see this as good buying.

GNE's yield is significantly higher than the others which confers a degree of protection from the steep rise in worldwide bond rates but if they go much higher...

As you can see in this link, The Kupe field is in pretty steep decline, see the grey image in this link which shows the value of "boie" (barrels of oil equivalent)
https://www.offshore-technology.com/data-insights/oil-gas-field-profile-kupe-conventional-gas-field-new-zealand/?cf-view 
That's not to say the field estimates might not get revised again, but the well currently being drilled at significant cost is only expected to add ~ 1 year of life to the field at the current production rate.

With the Rankine's also having a somewhat limited life I see GNE as a pure yield stock.  Of course, the new CEO will say we have to invest for the future of the company and the environment with renewable generation, but he has to say that given the limited life nature of the some of GNE's assets.   I would see any cut in the dividend as a clear sign the directors and management believe the current rate is unsustainable in the long run.

[winner (n)]

BusinessDesk making the most of that Forbar report with long story this morning. Pretty dismal they are with phrases like 'share prices have defied gravity recently" and "underlying assumptions about growth are on shaky ground" and "heroic assumptions " and "downgrades likely" etc etc

I updated my model of GNE divie yield v 10 year Govt rate yesterday. Current 10;year Govt rate 5.55% and heading to 6% (?)...... if GNE share price reverted to that historical relation it says a share price of about $2.00/$2.05

Things could turn pretty quick

[winner (n)]

Hey Basil, it worries me when you say ' With the Rankine's also having a somewhat limited life I see GNE as a pure yield stock.  Of course, the new CEO will say we have to invest for the future of the company and the environment with renewable generation, but he has to say that given the limited life nature of the some of GNE's assets.   I would see any cut in the dividend as a clear sign the directors and management believe the current rate is unsustainable in the long run."

I think you might be right

[Basil]

Heading to 6%?
Maybe.  Massive U.S. treasury issuance going on with quantitative tightening and that's set to continue into 2024 and is sure to cause treasury rates all around the world to stay at elevated level's.  I think we're stuck with historically high bond rates for the foreseeable future.