GNE - Genesis Energy

[Raven]

Need those quick start gas units.
https://www.interest.co.nz/economy/124862/after-winters-close-shaves-transpower-warns-more-concerns-ahead-due-unreliability

[Basil]

"The Dividend remained strong"...that's what the directors said when everyone was expecting it to go up.
Reading between the lines I think it's now crystal clear the chances of it going up in the foreseeable future is basically nil so while staff and management get wage increases shareholders dividends don't despite being promised dividends would match inflation when this floated. Increases in the past have never matched inflation and it would appear the best shareholders can hope for is they stay the same in the future, (a decrease of the inflation rate every year in real terms).  Meanwhile it appears that GNE is about to enunciate a new warm and fuzzy strategy that truly embraces all the wonders of ESG going forward.
Hmmm...

[winner (n)]

F22 EBITDAF was $440m  and F23 was $524m but they say F24 is going to be about $430m

Jeez that's going backwards and everybody is talking growth

No wonder share price in 230's .....(heading to $2 .)

Or have I missed something vital?

But I suppose if they reduce emissions as well it will be OK

[Basil]

F22 EBITDAF was $440m  and F23 was $524m but they say F24 is going to be about $430m

Jeez that's going backwards and everybody is talking growth

No wonder share price in 230's .....(heading to $2 .)

Or have I missed something vital?

But I suppose if they reduce emissions as well it will be OK

Much bigger ESG goals than that.  They really rave about people and the planet and how Aotearoa needs them to invest heavily in climate friendly projects.  Even have a fabulous intern program for Māori cadets too. These guys have huge ESG ambitions.  The raves about ESG achievements are going to more and more pronounced in the years ahead.  Makes you feel all warm and fuzzy inside and want to go and cuddle a tree eh .

[Plata]

I think you'll find EBITDAF has grown overtime, of course not very strongly. The share price right now is just a story of interest rates IMO, other than the breakdown of unit 5 nothing unusual and negative has occurred in the last year or two that couldn't have been foreseen years ago (and so in theory be priced in). I'm of the opinion that interest rates will come down in the next few years, and while I don't know when they will peak out, I imagine it will be a good day to hold GNE when they do.

 While I am concerned about operating cost inflation, these have been assuaged somewhat by the recent layoffs announcement. Letting 200 people go from a business of 1300 is significant and marks the first time in recent history the number of staff will meaningfully decrease. Whether or not the current and planned investment in 'productivity enhancing technology to deliver operational cost efficiencies' is realised, knocking out $10 million in people costs is a good start.

[Basil]

Couple of the senior management team also let go recently.    Agreed, refreshing to see streamlining of a business.
My core thesis with the massive issuance of new treasuries by the US due to quantitative tightening and huge fiscal deficits, worldwide, long term treasury rates could stay elevated for quite some time and could in fact be the new normal.  Further, if / when they do eventually come down all stocks will benefit, not just income stocks.

GNE in trouble with iwi for their alleged mismanagement of Lake Waikaremoana...alleging overfilling for profit to 130% of rated capacity and destruction of precious walkways, campgrounds and toilets causing pollution, and lake front area's.  Paywalled 
https://www.nzherald.co.nz/nz/lake-waikaremoana-stoush-tuhoe-claim-genesis-management-far-more-destructive-than-gabrielle/KUQOV2N7VBACNFHT6QE6INMZUQ/

[winner (n)]

Couple of the senior management team also let go recently.    Agreed, refreshing to see streamlining of a business.
My core thesis with the massive issuance of new treasuries by the US due to quantitative tightening and huge fiscal deficits, worldwide, long term treasury rates could stay elevated for quite some time and could in fact be the new normal. [Further, if / when they do eventually come down all stocks will benefit, not just income stocks.

.....

Basil ...the new norm ....could even say the old norm ...oldies know this eh ....yo7ngsters think rates are always below 2%

A bit like this crayon drawing

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[Basil]

Yeap, US 10 year rate averaged around the current level for large parts of the latter decades last century too.  Probably is the new normal.

[Shareguy]

Craigs say

The key positive identified was the staff reductions which he saw equating to "repeatable cost savings of c.$12-16m pa (excluding simplification investment). A much-needed initiative in our opinion and likely to be viewed favourably by the market. More information to be provided at Genesis' Investor Day in November."

My feeling is that the increased capex is a good thing as they are spending it on renewables which will be important for making Genesis a more attractive investment proposition for fund managers in the future.

There is no doubt that interest rates (bond yields) will continue to impact on these type of dividend yield stocks but to be honest they impact on all equities in some way or another. We have now reached an interest rate peak in NZ and we aren't far away from the peak in the US as well and so from here these stocks will actually pick up again when interest rates are cut.

Overweight $3.05

I think it's important to note that the Craig's analyst used to work for Genesis

[Cod]

Price to land between RVGI replicated and Covid Low, as expected, bullish divergence indicates trend change between price and RVGI, price to bounce to underside of existing trend line say $2.53 before Xmas.
Disc: don't hold, merely an academic exercise.
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[winner (n)]

Craigs say

The key positive identified was the staff reductions which he saw equating to "repeatable cost savings of c.$12-16m pa (excluding simplification investment). A much-needed initiative in our opinion and likely to be viewed favourably by the market. More information to be provided at Genesis' Investor Day in November."

My feeling is that the increased capex is a good thing as they are spending it on renewables which will be important for making Genesis a more attractive investment proposition for fund managers in the future.

There is no doubt that interest rates (bond yields) will continue to impact on these type of dividend yield stocks but to be honest they impact on all equities in some way or another. We have now reached an interest rate peak in NZ and we aren't far away from the peak in the US as well and so from here these stocks will actually pick up again when interest rates are cut.

Overweight $3.05

I think it's important to note that the Craig's analyst used to work for Genesis

Is that analyst biased then?

He's certainly bullish eh

[Shareguy]

Is that analyst biased then?

He's certainly bullish eh

Biased, not sure. He certainly should be a lot more knowledgeable than others.

I notice that Jarden also have outperform at $3.01.

[Basil]

Its depressing but unfortunately, this market doesn't care one iota about brokers theoretical share price forecasts.  It's just a relentless grind down for the market as a whole.  NZX50 (inclusive if all dividends paid) is down exactly 10% since 1 August, (less than 3 months), just down, down, down, (4.2%, then 2.2% then 3.6% this month to date) month after month after month.  https://www.goodreturns.co.nz/article/976522397/interest-rates-earnings-guidance-squeezes-shares-down.html?utm_source=GR&utm_medium=email&utm_campaign=GoodReturns+Market+Report+for+25+Oct+2023
Shareholders of GNE really need some clarity over what's the sustainable level of dividend going forward?  30 November investor day can't come soon enough.
I can't measure its worth to me until I know that, so I am happy to sit on the sidelines in the meantime.  The extent of wokeness in the annual report rival's HGH so that makes me extremely cautious about their intentions.    If they announce they are going to become a certified B Corp company or have intentions to aim for that in the future, run for the hills !

[Plata]

Interest rates have trended down for the last 500 years. I don't see that suddenly changing. Regarding US treasuries, some would say the US has a debt problem, but others would say it doesn't matter. If a large debt raising gets poor interest and sends yields spiking, it is just going to flow onto interest rates in all other parts of the US economy and reduce the need for the FED to tighten or raise. I agree the ESG crap is becoming bothersome, I seriously doubt some of the programs they are spending money on have a meaningful impact on the share price.

If OPEX does not meaningfully reduce in the coming years they will have to reduce capex to strictly SIB of ~60 mill just to tread water debt wise if we stay around the 430 ebitdaf mark. OPEX was 299 in FY22. FY24 375 guided. dividend absolutely will be cut if they fail to do this imo.

What do y'all think

[Basil]

Gosh there's a lot there Plata and I'd have to look at all that in the cold light of day when a lot less tired but my overarching thesis is this.  They simply cannot reduce capex to strictly stay in business level's in the medium term as they have to reinvest in expensive solar to replace generation capacity being lost through Kupe field depletion and eventually from lower Rankine utilization.

Looking at their balance sheet it's hard to see them raising a lot more debt to fund the solar, especially at current interest rates.  I don't see how the dividend is sustainable in the medium term?
I think its crystal clear that it's not going up after the board signaled that by keeping in the same despite a record EBITDA result this year.  Think about this.  It would only have cost them $12m to do the customary positive adjustment to the dividend in FY23 and they could easily have afforded that and still reduced debt nicely, but the board wanted to send a message loud and clear.  Stating "the dividend remained strong"...reading between the lines, really begs the question, for how much longer?