GNE - Genesis Energy

[Hectorplains]

Craig's analyst who used to work for Genesis has after all these years decided that he has been wrong, and has added a 20 percent discount to their target price in latest note.

In this note we update our valuation methodology for GNE to include its historical trading discount vs. our DCF valuation. We think it is likely to continue trading on this discount without a clear transition away from its thermal assets. GNE will play a critical role in providing NZ's future energy security needs over the medium-term but we think the market is ignoring the long-term portfolio transition that we include in our DCF

Included in GNE's TP, we overlay a c.20% discount to its DCF spot valuation, representing the average discount it trades on compared to its peer groups EV/EBTIDA multiple (CEN/MEL/MCY.

Disappointed to say the least that after all these years he suddenly says the discount is warranted. Neutral $2.39 TP

Disc. Have sold over half my holding for a number of reasons.

They have an Investor Day coming up on the 30th, at which they've have said they'll release the outcomes from the Operations Review which has been running for more than 6 months.  Hopefully, that will put some clarity around where they're going.  I don't think John's public ponderings about the possibility of using hydrogen to run a key Huntly unit were particularly helpful. 

[Basil]

Craig's analyst who used to work for Genesis has after all these years decided that he has been wrong, and has added a 20 percent discount to their target price in latest note.

In this note we update our valuation methodology for GNE to include its historical trading discount vs. our DCF valuation. We think it is likely to continue trading on this discount without a clear transition away from its thermal assets. GNE will play a critical role in providing NZ's future energy security needs over the medium-term but we think the market is ignoring the long-term portfolio transition that we include in our DCF

Included in GNE's TP, we overlay a c.20% discount to its DCF spot valuation, representing the average discount it trades on compared to its peer groups EV/EBTIDA multiple (CEN/MEL/MCY.

Disappointed to say the least that after all these years he suddenly says the discount is warranted. Neutral $2.39 TP

Disc. Have sold over half my holding for a number of reasons.

Good way to flush your credibility down the toilet in my opinion.
To my mind, you either believe the underlying assumptions underpinning your DCF valuation, (remembering a DCF valuation is just based on a whole set of assumptions about future cash flows from various parts of the business), or you don't.  Some time back I suggested that the fact he used to work there could lead to unconscious bias which is very difficult to eradicate from your brain.  As you know, I have been very cautious on his assumptions because of this.
Average of the 5 analysts covering it is here https://www.marketscreener.com/quote/stock/GENESIS-ENERGY-LIMITED-17595957/finances/ but will not include the very latest downgrade you've highlighted.
As discussed previously this is a pure yield stock and anyone hoping for growth is somehow overlooking the steep decline in Kupe outputs and the Rankine's limited life.  GNE faces a very difficult and extremely capital-intensive task to try and replace the generation capacity they will lose in the medium term.
The consensus analyst view is there is no longer any prospect of dividend growth in the years ahead.  Two questions remain unanswered to my mind.
Will future dividends be cut and if so to what extent?
Will future dividends be fully imputed or only partially imputed and if the latter to what percentage?  (Note there is nothing in the kitty in terms of the imputation credit account)
I'm out and staying out.  I really don;t like the prospects for dividends in the year ahead and their ESG culture is very woke.

[Shareguy]

Good way to flush your credibility down the toilet in my opinion.
To my mind, you either believe the underlying assumptions underpinning your DCF valuation, (remembering a DCF valuation is just based on a whole set of assumptions about future cash flows from various parts of the business), or you don't.  Some time back I suggested that the fact he used to work there could lead to unconscious bias which is very difficult to eradicate from your brain.  As you know, I have been very cautious on his assumptions because of this.
Average of the 5 analysts covering it is here https://www.marketscreener.com/quote/stock/GENESIS-ENERGY-LIMITED-17595957/finances/ but will not include the very latest downgrade you've highlighted.
As discussed previously this is a pure yield stock and anyone hoping for growth is somehow overlooking the steep decline in Kupe outputs and the Rankine's limited life.  GNE faces a very difficult and extremely capital-intensive task to try and replace the generation capacity they will lose in the medium term.
The consensus analyst view is there is no longer any prospect of dividend growth in the years ahead.  Two questions remain unanswered to my mind.
Will future dividends be cut and if so to what extent?
Will future dividends be fully imputed or only partially imputed and if the latter to what percentage?  (Note there is nothing in the kitty in terms of the imputation credit account)
I'm out and staying out.  I really don;t like the prospects for dividends in the year ahead and their ESG culture is very woke.

Exactly, a loss of credibility. To say after all this time that a 20 percent discount is warranted is a joke.

[Shareguy]

IMO, it is irrelevant what ANY analyst says about share prices. It is the market that decides what the SP is on any given day

You say for years Craig's had a higher valuation on GNE. Did that increase the SP? No

Now that Craig's have lowered their valuation, will that affect SP? I don't think so. All it shows me is that Craig's have decided to skew their valuation based on a perceived historical relationship between SP and DCF. Will this difference continue in the future? Or is it skewed by current circumstances?

Remember, these analysts are like weather forecasters. Using imperfect models to simulate a dynamic situation. But unlike the weather, the sharemarket has a large psychological component that simply isn't rational and therefore can't be modelled

Agree with what you say but for me I have found analyst reports and target prices extremely beneficial. It allows you to confirm an opinion and over time has made and saved me a lot of money. The brokerage fees are well worth it in my opinion to get that research.

[xafalcon]

Lake Onslow pumped hydro is officially cancelled according to the National-ACT coalition agreement. Terrible decision for NZ Inc, but as a shareholder I expect to be rewarded as future profits are no longer in jeopardy

[BlackPeter]

Lake Onslow pumped hydro is officially cancelled according to the National-ACT coalition agreement. Terrible decision for NZ Inc, but as a shareholder I expect to be rewarded as future profits are no longer in jeopardy

Actually - I think this is great news for NZ. Lake Onslow was the remaining dinosaur of the "Think Big" projects. Questionable return if everything would go to perfection (which it never does), and zilch return if some of the many risks eventuate.

Just put all your money into one big project and wait for the next earthquake to wipe it away ...

[xafalcon]

Actually - I think this is great news for NZ. Lake Onslow was the remaining dinosaur of the "Think Big" projects. Questionable return if everything would go to perfection (which it never does), and zilch return if some of the many risks eventuate.

Just put all your money into one big project and wait for the next earthquake to wipe it away ...

You clearly have not read the various papers analysing the cost:benefit and risk profile. And it's not just NZ data and analysis - pumped hydro is being constructed worldwide, wherever topography allows, almost always at much greater cost/GWh storage than Lake Onslow offered

I wonder what NZ would be like now, if our forefathers didn't have the belief 100 years ago that hydroelectricity was a good idea, or 60 years ago that geothermal was worth pursuing. Both were very expensive options, but have proven to be invaluable to our economy

Lake Onslow had the same potential to transform our economy as we wean our dependence off fossil fuels (coalition agreement also allows offshore oil and gas prospecting and development, which I think is a good idea)

Anyway, it doesn't matter now. Our children will look back and lament the lost opportunity

[Waltzing]

Who mines coal in NZ...

are coal mines back?

https://www.cnbc.com/2023/11/24/rare-earth-discoveries-mean-coal-mines-could-have-a-future.html

[Swala]

You clearly have not read the various papers analysing the cost:benefit and risk profile. And it's not just NZ data and analysis - pumped hydro is being constructed worldwide, wherever topography allows, almost always at much greater cost/GWh storage than Lake Onslow offered

I wonder what NZ would be like now, if our forefathers didn't have the belief 100 years ago that hydroelectricity was a good idea, or 60 years ago that geothermal was worth pursuing. Both were very expensive options, but have proven to be invaluable to our economy

Lake Onslow had the same potential to transform our economy as we wean our dependence off fossil fuels (coalition agreement also allows offshore oil and gas prospecting and development, which I think is a good idea)

Anyway, it doesn't matter now. Our children will look back and lament the lost opportunity

Couldn't agree more. This is a huge loss going forward.

[BlackPeter]

You clearly have not read the various papers analysing the cost:benefit and risk profile. And it's not just NZ data and analysis - pumped hydro is being constructed worldwide, wherever topography allows, almost always at much greater cost/GWh storage than Lake Onslow offered

I wonder what NZ would be like now, if our forefathers didn't have the belief 100 years ago that hydroelectricity was a good idea, or 60 years ago that geothermal was worth pursuing. Both were very expensive options, but have proven to be invaluable to our economy

Lake Onslow had the same potential to transform our economy as we wean our dependence off fossil fuels (coalition agreement also allows offshore oil and gas prospecting and development, which I think is a good idea)

Anyway, it doesn't matter now. Our children will look back and lament the lost opportunity

Amazing how many logical falacies you can pack into 3 paragraphs. You demonstrate an amazing amount of ignorance mixed with a handful of red herrings.

Ever wondered what it means if we put all our eggs into one basket and the big one destroys them all? Remember - its overdue and Lake Onslow is not far away from the fault line. This damage alone would set us back more than a generation.

EQC would not cover for the generational damage ;

Your statements re hydroelectriricity and geothermal are so far off the point that its hardly worthwhile mentioning. Sure - some past projects and ideas have been implemented and are useful - and others are not, but this does not mean that any new idea or project is sensible or useful. Classical logical fallacy.

Maybe you should listen to fergs link about logical fallacies, and than come back if you have anythng relevant to say ;

https://stocktalk.co.nz/index.php?topic=69.msg15176#msg15176

[Plata]

Just the interest costs alone on the supposed 16 billion dollar budget would likely exceed 600 million per annum.

Assuming the upper range output of 2000 MW (assuming this for charging and discharging), if it ran constantly at 2000 MW for both charging and discharging in arbitrage operation it could do about
17.5 million MWh of charging/discharging. So 8.75 million MWh charging, 8.75 million MWh discharging. So only 8.75 million MWh worth of arbitrage. Even with those generous assumptions it would still need to make ~$69 per MWh arbitrage profit just to pay the interest, that's without any other opex. The idea that this could compete with other energy sources that have LCOEs of $80-120 per MWh, how is it going to pay for itself.

[xafalcon]

Just the interest costs alone on the supposed 16 billion dollar budget would likely exceed 600 million per annum.

Assuming the upper range output of 2000 MW (assuming this for charging and discharging), if it ran constantly at 2000 MW for both charging and discharging in arbitrage operation it could do about
17.5 million MWh of charging/discharging. So 8.75 million MWh charging, 8.75 million MWh discharging. So only 8.75 million MWh worth of arbitrage. Even with those generous assumptions it would still need to make ~$69 per MWh arbitrage profit just to pay the interest, that's without any other opex. The idea that this could compete with other energy sources that have LCOEs of $80-120 per MWh, how is it going to pay for itself.

I'm not sure why you have chosen to ignore basic considerations

Extra baseload peak electricity must come from somewhere. If not Lake onslow, then it must be coal, since NZ is running out of gas, and geothermal is reaching its limit (and is very capital intensive). Let's work on 1000MW, and assume 90% carbon capture combined cycle

Construction cost (today) $4.7B (10 years time = way more)
Operation cost (today) $150/MWh (10 years) more
Carbon cost $0.05/MWh

Using your 8.75M MWh, and current operation cost ($150/MWh), annual operation cost is 1.75B

$16B - $4.7B = $11.3B / $1.75B = 6.46 years to reach cost parity.  From this point, arbitrage of pennies makes it feasible

In reality, we already have the situation where wholesale prices fall to zero when renewables are in surplus. And typically wholesale prices are $170/MWh otherwise. When that arbitrage is applied to your 8.75M MWh, that's $1.5B pa.

Pumped hydro has a 100 year life expectancy, because it's just reversible hydro technology)

This is why pumped hydro is being deployed wherever topography reasonably allows

It's not just me talking it up, it's happening around the world, and the economics stack up

[xafalcon]

Amazing how many logical falacies you can pack into 3 paragraphs. You demonstrate an amazing amount of ignorance mixed with a handful of red herrings.

Ever wondered what it means if we put all our eggs into one basket and the big one destroys them all? Remember - its overdue and Lake Onslow is not far away from the fault line. This damage alone would set us back more than a generation.

EQC would not cover for the generational damage ;

Your statements re hydroelectriricity and geothermal are so far off the point that its hardly worthwhile mentioning. Sure - some past projects and ideas have been implemented and are useful - and others are not, but this does not mean that any new idea or project is sensible or useful. Classical logical fallacy.

Maybe you should listen to fergs link about logical fallacies, and than come back if you have anythng relevant to say ;

https://stocktalk.co.nz/index.php?topic=69.msg15176#msg15176

The big one. Is that all you have? Well, the big one hasn't taken out any of our power plants yet. And if you look at the fault line through the SI, you will see it is nowhere near Lake Onslow. If the big one comes, it's just as likely to take out Huntly, with the same generation capacity. Not to mention many other critical infrastructure items

If you haven't got a good set of facts to put up, which you haven't so far, your comment is meaningless

And keep your insults to yourself. I think your comment is ignorant, but I don't come out and say it. Rather, I put up fact based evidence to counter comments that don't pass the sniff test

[BlackPeter]

The big one. Is that all you have? Well, the big one hasn't taken out any of our power plants yet. And if you look at the fault line through the SI, you will see it is nowhere near Lake Onslow. If the big one comes, it's just as likely to take out Huntly, with the same generation capacity. Not to mention many other critical infrastructure items

If you haven't got a good set of facts to put up, which you haven't so far, your comment is meaningless

And keep your insults to yourself. I think your comment is ignorant, but I don't come out and say it. Rather, I put up fact based evidence to counter comments that don't pass the sniff test

Oh, sorry - I assumed you are vaguely familiar with the discussion. Appears I was wrong.

Here is a nice summary of the top reasons why it was not a good idea, but I didn't wanted to warm up a discussion which came already to a sensible conclusion:

https://businessdesk.co.nz/article/listed-companies/10-reasons-why-project-onslow-is-a-bad-idea
(paywalled)

In summary the article shows that it would come ways to late (even if it goes to plan), it is ways to dear (even if we don't assume for the typical cost rises of such projects), there is no proof it can be done at all (i.e. significant realisation risk - pay the money and get nothing) and it is competing with much better and cheaper solutions and would kill these off. Pouring all our money into Lake Onslow would stop any sensible investments into renewable energies in NZ.

Sorry, you missed that - or do you like to fund dinosaurs?

And the earth quake risk I mentioned ... again, you have no relevant argument. I am sure 20 years ago nearly everybody in Christchurch or Rolleston would have laughed at me if I would have mentioned the Earthquake risk. They don't laugh anymore, don't they?

Putting a generational investment for the whole country (Lake Onslow would consume several decades of our energy investment funds) into one single and earthquake prone place in NZ would be the top of irresponsibility.

Look, in 2010 everybody would have said there is no need to earthquake strengthen the Christchurch Cathedral ... hey, it stood there already for more than 100 years without incident, didn't it? I am wondering how people did assess this risk after February 2011?

Your examples for things which didn't happen are as relevant as a drink driver claiming that he came safe home last time. I do hope that our politicians are behaving a bit more responsible than that and, it looks like the new government demonstrates a bit more brains and responsible behaviour than gambling all our money into one single high risk low return project like Lake Onslow

[Waltzing]

forget all this stuff and DRILL DRILL DRILL...

well anyway ... there is hope apparently...

https://edition.cnn.com/2023/11/26/tech/ai-climate-solutions/index.html