GNE - Genesis Energy

[Basil]

So 14 cps it is and given they are paying out a lower percentage of profit investors will be hoping its 100% imputed so that's 14/0.72 = 19.44 cps gross.
As mentioned earlier today, history has shown you can take their aim to maintain this in real terms with a grain of salt, they said the exact same thing when they listed and frankly, they never even tried.

Better to assume they add 0.1 cps to each 7 cps for the next few years and make their usual token effort...until, wait for it....the next reset.  Sure 19.44 / 237 = 8.2% gross, (if its fully imputed) and you get the feel good factor if you are into that sort of thing, of supporting the transition towards being much more renewable but I think Winner highlighted an important factor today, the risk of substantial cost blow outs with new projects. 

Let's get real, it's almost impossible to predict what the real eventual cost of these new projects will be, but one thing is for sure, it will be a heck of a lot more than they think it currently might be so the risk is there of shareholders being the sacrificial lamb yet again and there being another dividend reset down the road.

[Plata]

I don't think it is fair to assume these massive cost blowouts you speak of. Especially for the solar, one of the benefits of doing the JV is the partner has a lot of recent projects completed under its belt so you would hope that they are reasonably accurate on cost forecasting. I would ask why are people not upset contact isn't paying out 100% of FCF? I think anyone could see that a company paying out near or even above in some cases 100% of FCF as dividends isn't exactly giving itself much ability to grow anything other than debt. I'm glad they are finally doing something about it and glad I won't have to receive unimputed crap going forward. It seems nobody was very surprised by the numbers today, will be interesting to see how the sp fairs as people dig into the meat and bones.

[winner (n)]

All this reminds me of back in 2006 when Telecom slashed their dividend. Mum and dads, fund managers, pension funds etc etc were gutted and saw the Telecom share price collapse ...it was no longer seen as good yielding safe stock to have

The share price more than halved over the next few years ......took 5 years to bottom out. Share price only started to recover when dividend yield got into high teens. In 2011 ......been trending up since then.

I see this happening with the GNE share price ...maybe not halving but going through a decent fall ....and after a few years possibly recovering.

But maybe this time it's different ....... Yield chasers are more understanding these days and the share price will start to go up again 

[Basil]

"This time it's different" is the most dangerous phrase with investing I know of.

[snapiti]

I totally agree and I remember my parents had a holdings in telecom at the time and were weighing up selling but held onto them......that was a slow grind downwards from $8 to $2......I learnt a lot from that

[Basil]

It all started to go wrong when they stopped using "Spot" the very cute Jack Russell Terrier in their advertising.  Gosh those adds were so cool. 

GNE use a Beagle in their adds.  They need to get that Beagle to do cool tricks and get more animated, that might help the share price

[Hectorplains]

As reported in Businessdesk: The way Genesis Energy tells it, the company suffers from two perennial problems that cause its share price to underperform its peers. One is that it doesn't have a clear growth story. The other, more deeply entrenched problem, is what its new chief executive Malcolm Johns calls an "ESG discount", where the market punishes the only electricity producer in the country that still uses coal to make power for doing so.

Is there any evidence to support this assertion?  I've not seen any signs of a 'morality' factor in the pricing of any NZX stock. Perhaps all the coal smoke is blinding me to it? 

[Basil]

There's no question a legacy issue that precludes some funds who apply stringent ESG criteria to their investment protocols from considering GNE.
As to the possible effect on the share price I think that's conjecture as if the price was higher the yield will be lower and that would count many yield investors out, especially now with the much-reduced forward dividend outlook.

[Ricky Bobby]

As reported in Businessdesk: The way Genesis Energy tells it, the company suffers from two perennial problems that cause its share price to underperform its peers. One is that it doesn't have a clear growth story. The other, more deeply entrenched problem, is what its new chief executive Malcolm Johns calls an "ESG discount", where the market punishes the only electricity producer in the country that still uses coal to make power for doing so.

Is there any evidence to support this assertion?  I've not seen any signs of a 'morality' factor in the pricing of any NZX stock. Perhaps all the coal smoke is blinding me to it? 

Is at all the "trending" ethical funds staying away because of their dirty energy? For The younger generation coming through this is highly important and are the biggest takers on the more ethical funds. I can see what they are trying to do. Same here with the wine business... story and environmental impacts are really important. boomers unfortunately not around for ever...

[Red Baron]

Outstanding eenterview vith Genesis' chief executive Malcolm Johns.

https://www.rnz.co.nz/national/programmes/ninetonoon/audio/2018917675/genesis-shifts-approach-to-renewable-energy-large-battery-planned-at-huntly

Questions 'vright on the mark' and Johns doesn't dodge any.  Essential leestening vor Genesis Energy zhareholders

RB

[LoungeLizard]

Looks like the talk of GNE's decline is exaggerated. SP up to 2.39.

[winner (n)]

Update on my model re correlation between GNE dividend yield and 10 year NZ Govt stock. Correlation since listing pretty strong and statistically the changes in 10 year rate accounts for 60% of changes inbGNE yield (ie share orice)

Updated because of significant reduction in GNE dividend

Since listing the difference between tax paid returns of both has been a fraction under 4% points. I see this as what the market sees as the 'risk factor' in holding GNE shares ...but over the last couple of years the difference has shrunk a bit as punters seem to see less 'risk' in GNE.

So let's assume the difference should 3.5% points


GNE at $2.38 the other day before announcing reduced dividend the difference was 3.55% points ...could say price about right

But with the reduced dividend that 'fair price' for GNE drops to $1.86

Think we all agree that GNE is a rates sensitive stock ...so below is what 'fair price' is at announced reduced dividend and difference to 10 year Govt of 3.5% points (tax paid) -

10 year Govt 4% gives GNE fair price $2.10
10 year Govt 3% gives GNE fair price $2.36
10 year Govt 2% gives GNE fair price $2.70

Of course all those GNE prices above become lower if the 'risk factor' reverts to its historical average of about 4% points

Model worked well for me over the years when assessing where GNE share price is heading so I will stick with it.

So model says lots downsides coming up ...........and it does seem that GNE has become more risky if late .......sustainability of dividend, new strategy, execution risk etc etc

Anyway that's my reasoned view of the current situation,

[xafalcon]

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

Ahhh, businessdesk. A mouthpiece for businesses - in this instance read "the generators". I wonder if they wanted Lake Onslow to go ahead???

Taking your points from the article (I couldn't read as paywalled"

Too late. Rubbish. Timing would be about right - refer to GNE strategy released recently = NZ good to 2035

Too costly. Refer to my previous post. When calculations are done correctly ( ie include an alternative baseload/peaker construction and running cost) the pay back is sub 10 years. That's a good investment return

Can't be done. Hundreds to these pumped hydro plants have been built. Onslow is no different. The only change I would make is above ground pipework = cheaper, easier access, avoids subterranean geological problems that may be identified (like Clyde dam)

Onslow would stop renewable investment in NZ. Ridiculous statement. Onslow does not create electricity, it only stores electricity. Additional electricity for NZ must come from somewhere, and renewables are the cheapest option. Solar cheapest, then wind. But solar MUST  be timeshifted by approximately hours maximum (via storage) and wind generally needs to be timeshifted over longer periods (weeks-months)

The big one. I have already answered this red herring, and won't waste further time on it other than to say it applies to EVERYTHING in NZ but hasn't stopped any projects so can't be the show stopper it is made it out to be

Intermittent generation (solar and wind) needs either storage or backup with additional baseload/peaker capacity). The "additional" will have to be coal (or biomass per GNE) as there is no other viable option. That's $4B per 1000MW just to construct, running cost is additional and ongoing

And for good measure, I'll throw this in (again). Pumped hydro is booming worldwide because it is reliable, long lasting, proven and the economics stack up favourably. Perhaps you hold the view that somehow, NZ is different. Reality check - it isn't any different

Now, instead of replying with a handful of generalisations and biased "reporting" references, why don't you specifically explain  why it was so different to every other pumped hydro plant in the world? And how this makes it non-viable.

[xafalcon]

Update on my model re correlation between GNE dividend yield and 10 year NZ Govt stock. Correlation since listing pretty strong and statistically the changes in 10 year rate accounts for 60% of changes inbGNE yield (ie share orice)

Updated because of significant reduction in GNE dividend

Since listing the difference between tax paid returns of both has been a fraction under 4% points. I see this as what the market sees as the 'risk factor' in holding GNE shares ...but over the last couple of years the difference has shrunk a bit as punters seem to see less 'risk' in GNE.

So let's assume the difference should 3.5% points


GNE at $2.38 the other day before announcing reduced dividend the difference was 3.55% points ...could say price about right

But with the reduced dividend that 'fair price' for GNE drops to $1.86

Think we all agree that GNE is a rates sensitive stock ...so below is what 'fair price' is at announced reduced dividend and difference to 10 year Govt of 3.5% points (tax paid) -

10 year Govt 4% gives GNE fair price $2.10
10 year Govt 3% gives GNE fair price $2.36
10 year Govt 2% gives GNE fair price $2.70

Of course all those GNE prices above become lower if the 'risk factor' reverts to its historical average of about 4% points

Model worked well for me over the years when assessing where GNE share price is heading so I will stick with it.

So model says lots downsides coming up ...........and it does seem that GNE has become more risky if late .......sustainability of dividend, new strategy, execution risk etc etc

Anyway that's my reasoned view of the current situation,

Im interested in what your correlation coefficient is? And the time-scale of your data analysis?

I'm also interested if you have looked at correlation between SP and any other government bonds (eg USA, UK, JPN, AUS) or composite rates of G7 etc. Asking this as NZ govt 10Y is pretty irrelevant on a world stage, and GNE investors (excl NZ govt = silent and not actively buying or selling so are irrelevant to SP) are primarily not located in NZ

[winner (n)]

Im interested in what your correlation coefficient is? And the time-scale of your data analysis?

I'm also interested if you have looked at correlation between SP and any other government bonds (eg USA, UK, JPN, AUS) or composite rates of G7 etc. Asking this as NZ govt 10Y is pretty irrelevant on a world stage, and GNE investors (excl NZ govt = silent and not actively buying or selling so are irrelevant to SP) are primarily not located in NZ

Monthly data since GNE listed ....Rsq is .61 ...though reducing lately

Only done v NZ 10 year but points re global action noted. Not so keen as to do all that detail ...suits me as it is.

As I've said before I know very little about how this industry works so it's only a numbers game to me.

Craig's did a similar exercise a while ago and concluded ...

The analysis suggests that the sensitivity of gentailer stocks to the 10-year government bond yield has lessened in recent times. Two potential reasons for this could be that investors feel bond yields have reached a level where they may start to plateau, or possibly that other factors such as positive sentiment toward electrification is providing a certain amount of buoyancy to the stocks, resulting in a level of dislocation from historical behaviours. It is possible that investors are concerned about a recessionary outlook, thus turning to utility stocks as a defensive strategy, with an expectation that once a recession takes hold bond yields would likely fall, hence making the gentailer yield more attractive