GNE - Genesis Energy

[Plata]

BIG increase in resi netback, and somehow they even managed to increase resi volume. HUGE increase in wholesale netback too seemingly. chaching.

[Basil]

 If the divvy is fully imputed, (they have a very poor ICA situation so there is no guarantee whatsoever it will be), 14 cps = 19.44 cps gross = 7.7% gross yield at $2.52.  If its 80% imputed as most of its dividends have been since it listed that works out to 18.04 cps gross = 7.16% Gross.  Frankly I'd feel more comfortable to try and build a case for investment with 80% imputation as that's far and away the most common level at which imputation credits have been attached but 7.16% is not especially attractive.

The directors have a long-proven track record of being completely "full of B.S" when it comes to stated intentions to move the dividend in line with inflation, they never have and probably never will.  There's a lot of execution risk as they try and build out generation capacity to replace aging assets such as Huntly and Kupe.

The shares have risen slightly off recent lows due to, in my opinion:
1. Much lower bond yields in recent months
2. A sense that at least there is some plan to replace aging assets.
3. A better prospective ESG profile going forward.

The shares look fully priced to me for where the 10 year bond yield is today (4.7%) only a 3% premium (2.46% premium at 80% imputation).  These are record ever low premiums to the 10 year rate.
My view is the future of the share price will be closely related to the bond yields, and it's very unlikely that this bond proxy will see its premium to the ten year reduce below current level's.  Some experts think the fall in the 10 year rate has done its dash for a while, and I think we will probably see the shares stagnate around the current level. and probably retrace a little of their recent recovery if the next dividend is only 80% imputed.  We'll find that out next month.

Talk of recovery into the high $2's and even low $3 range...I'm sorry but that makes no sense to me whatsoever.

[xafalcon]

If the divvy is fully imputed, (they have a very poor ICA situation so there is no guarantee whatsoever it will be), 14 cps = 19.44 cps gross = 7.7% gross yield at $2.52.  If its 80% imputed as most of its dividends have been since it listed that works out to 18.04 cps gross = 7.16% Gross.  Frankly I'd feel more comfortable to try and build a case for investment with 80% imputation as that's far and away the most common level at which imputation credits have been attached but 7.16% is not especially attractive.

The directors have a long-proven track record of being completely "full of B.S" when it comes to stated intentions to move the dividend in line with inflation, they never have and probably never will.  There's a lot of execution risk as they try and build out generation capacity to replace aging assets such as Huntly and Kupe.

The shares have risen slightly off recent lows due to, in my opinion:
1. Much lower bond yields in recent months
2. A sense that at least there is some plan to replace aging assets.
3. A better prospective ESG profile going forward.

The shares look fully priced to me for where the 10 year bond yield is today (4.7%) only a 3% premium (2.46% premium at 80% imputation).  These are record ever low premiums to the 10 year rate.
My view is the future of the share price will be closely related to the bond yields, and it's very unlikely that this bond proxy will see its premium to the ten year reduce below current level's.  Some experts think the fall in the 10 year rate has done its dash for a while, and I think we will probably see the shares stagnate around the current level. and probably retrace a little of their recent recovery if the next dividend is only 80% imputed.  We'll find that out next month.

Talk of recovery into the high $2's and even low $3 range...I'm sorry but that makes no sense to me whatsoever.

I realise from your posts that you are very negative towards GNE. That's fine, everyone has their reasons. And looking at GNE as a pure dividend yield stock suits your narrative


But this is, IMO, an extremely blinkered perspective. Because you are ignoring the following

Electricity generation will need to increase 50% in the next 10 years due to electrification of as much as possible. Hence any company in the generation business has a golden opportunity to significantly increase their income and profitability

With the demise of Lake Onslow, thermal has taken on a major role to supply baseload when renewables are deficient. GME has over 1000MW of thermal, fully consented and with carbon credits. No new significant thermal sites will get consent. When the country needs thermal power, it will come from Huntly

GNE is the largest retailer of electricity in NZ, and continues to grow both customer numbers and netback. Their quarterly reports contain this evidence for all to read

The new strategy, if executed, will allow GNE to grow renewable generation and provide significant battery sourced peaking output in close proximity to 50% of the countries population

For these reasons, and a bunch of lesser importance others, I believe that GNE has the greatest upside of all the gentailers

[Basil]

EV sales worldwide are already tanking.  With the removal of the incentives and the application of road user charges I predict they will fall off the face of a cliff here.  I seriously doubt your theory generation will need to increase by 50% in the next 10 years or anywhere even remotely like that percentage.  Electricity demand growth to date has been extremely muted and I expect it will stay that way for the foreseeable future.

GNE have had no success with their earlier attempts to engage with the other industry participants in their swap-option deals on Huntly.  I see no compelling reason to think it will be different going forward and I note the new CEO's most recent attempt to jawbone others into action drew absolutely no response whatsoever from them.   The silence was deafening...again.

Retail share has come and gone over the years and I doubt that GNE is in a position to grow numbers in a meaningful way in the future which gets me back to this is a no growth yield stock, or bond proxy, pure and simple.

It's clear I think the yield is not by any means compelling at the current share price, and frankly, woefully inadequate at the target prices you are suggesting.

I like companies and directors that do what they say they are going to do, not talk a bunch of crap.  All GNE promises before on dividend growth were lies so only a fool would take them seriously this time.

Further, there is no guarantee there will not be another "dividend reset" in the future if the directors decide with the increased need for capex they need to retain a higher percentage of earnings.

There is nothing in the kitty in terms of the imputation credit account so some people might be investing thinking that the recent 100% imputation credit level will continue.  Someone with an understanding of these things like me needs to highlight that risk which I have done.

Maybe this does stack up compared to the other Gentailiers, but I don't care, I don't own any of them as I don't think they are a good buy either.

I think people "bottom fishing" for beaten down yield stocks have a better choice...one I will highlight in due course after I have executed to purchase a decent sized position. 

[winner (n)]

When the CEO guy talks about GNE share price being punished for using coal etc (the ESG discount) he's probably saying the divie yield should be closer to it peers

Maybe say 6%pa ....ie a share price of $3.05 (if divie 80% imputed)...hey presto the ESG discount is about 20%,as boss man said

GNE yield would then be more in line with its peers. As per NZX yield of it peers are -

CEN 5.8%
MNW 5.4%
MCY 4.7%
MEL 4.3%

[xafalcon]

EV sales worldwide are already tanking.  With the removal of the incentives and the application of road user charges I predict they will fall off the face of a cliff here.  I seriously doubt your theory generation will need to increase by 50% in the next 10 years or anywhere even remotely like that percentage.  Electricity demand growth to date has been extremely muted and I expect it will stay that way for the foreseeable future.

GNE have had no success with their earlier attempts to engage with the other industry participants in their swap-option deals on Huntly.  I see no compelling reason to think it will be different going forward and I note the new CEO's most recent attempt to jawbone others into action drew absolutely no response whatsoever from them.   The silence was deafening...again.

Retail share has come and gone over the years and I doubt that GNE is in a position to grow numbers in a meaningful way in the future which gets me back to this is a no growth yield stock, or bond proxy, pure and simple.

It's clear I think the yield is not by any means compelling at the current share price, and frankly, woefully inadequate at the target prices you are suggesting.

I like companies and directors that do what they say they are going to do, not talk a bunch of crap.  All GNE promises before on dividend growth were lies so only a fool would take them seriously this time.

Further, there is no guarantee there will not be another "dividend reset" in the future if the directors decide with the increased need for capex they need to retain a higher percentage of earnings.

There is nothing in the kitty in terms of the imputation credit account so some people might be investing thinking that the recent 100% imputation credit level will continue.  Someone with an understanding of these things like me needs to highlight that risk which I have done.

Maybe this does stack up compared to the other Gentailiers, but I don't care, I don't own any of them as I don't think they are a good buy either.

I think people "bottom fishing" for beaten down yield stocks have a better choice...one I will highlight in due course after I have executed to purchase a decent sized position. 

On EV sales I fully agree with you, in the short term. The RUC's are too high for passenger vehicles, because NZ has never had a meaningful number of non-petrol cars (unlike Europe),  so they were just lumped in with 3.5T trucks, and marginally lower than 6T trucks. That will change in a year or so as government brings petrol cars onto RUC's. Meanwhile EV prices will continue to fall. So sales will likely nose-dive for a year, then rebound

But process heat is where the most of the massive increase in electricity demand will come from. I suggest you google it. This change is mandated by the law, companies must do it, end of story

I like that you used my previous comment in your response. Time will tell if your swaption pessimism is well founded or otherwise. The past may not be a good guide on the future as electrification accelerates

Nobody can challenge your obvious hatred of GNE, and since you say you don't and won't ever hold this stock, which makes me wonder just why the heck you are so vocal on this tread??? It seems personal

I'm not saying that only positive posts should be made. Or that you should be a shareholder to comment. Problems should rightfully be raised and debated

You do seem quite hung up on imputation credits. 80% was fine for me since the beginning. There was some bonus 100% imputation, which was nice. But it was never suggested this was the normal. From my perspective imputation is well down the list of priorities, and I carry forward plenty of IC's every year

You also seem very unhappy about previous comoany comments on dividend indexing. GNE has paid a handsome dividend to me every 6 months. Much more than I have received from other gentailers, which you also dislike. Dud you disagree with selling 49% all those years ago?

I look forward to hearing which dividend stocks you buy into. You'll need to move quickly as first downward moves on 12M TD by a major bank were made yesterday. And we all know they are pack animals, always moving in harmony with eachother (although it's not anticompetitive, or cartel behaviour per our ineffective comcom)

[Basil]

I've shared how I see it for the sake of some objectivity on this thread.  There's no hate as you suggest, neither have I said I would never own it again. Please don't put words in my mouth.  In a nutshell what I am saying is if the price moves materially higher from here, the dividend yield gets even more modest than it already is.  It seems you are perfectly happy with the modest yields in this sector and on term deposits. I invest to beat the market, not to get an average market return.  I note the NZX50 which includes all dividends paid is still well down on where it was 3 years ago in January 2021. Each to their own approach.

[xafalcon]

I've shared how I see it for the sake of some objectivity on this thread.  There's no hate as you suggest, neither have I said I would never own it again. Please don't put words in my mouth.  In a nutshell what I am saying is if the price moves materially higher from here, the dividend yield gets even more modest than it already is.  It seems you are perfectly happy with the modest yields in this sector and on term deposits. I invest to beat the market, not to get an average market return.  I note the NZX50 which includes all dividends paid is still well down on where it was 3 years ago in January 2021. Each to their own approach.

You call it objectivity. Others may call it differently

I'm not seeing you ever owning GNE because, as you said
- the dividend % of SP is too low at current SP and woefully inadequate at higher SP
- you are worried about imputation credits
- you don't like companies that change their financial plans (aka talk a bunch of crap about dividend indexing)
- you are concerned GNE may change dividend policy again
- you don't believe swaption will happen
- you don't believe GNE will grow their customer numbers
- you don't see significant 10Y electricity growth

That's a pretty long list of reasons why you wouldn't. And some of them are pretty hard or impossible to overcome

Anyway. Have a read of CEN report today. Note national electricity demand growth figure. Average at 3%, then calculate over 10Y. Gives a figure of 35% demand growth over 10Y. And this is without any process heat electrification, before Glenbrook electric arc furnace is commissioned, assumes zero population growth, and tiny EV market penetration. Maybe that 10Y 50% demand growth I spoke of wasn't as outrageous as you thought. Just sayin'

And I do like to have a diversified investment portfolio. I obviously have shares, and term deposits, and a few rental properties, and I also have a small solar power farm, and a small drystock farm. The returns are acceptable to me, and there is essentially zero capital risk. I am happily retired in my mid 50's

Each to their own approach

[xafalcon]

Fonterra Edendale process heat conversion from coal to electricity

https://www.stuff.co.nz/climate-change/350157942/goodbye-coal-fonterras-southernmost-factory-shifts-electricity

This is the same technology that Synlait Dunsandel installed a few years ago, and is expected to be used at other dairy sites (fonterra and others) that are located near to HV transmission lines

[Plata]

Ah you bet me to it  . 20 MW is nothing to sneeze at.

[xafalcon]

Ah you bet me to it  . 20 MW is nothing to sneeze at.

Correct, is is a significant amount of energy. When compared against NZ current average daily peak usage of 6GW (summer 5GW, winter 7 GW), it's 0.33%

This is a perfect example of why process heat electrification over the coming decade will have such a significant effect on electricity demand and generation

For example. Dry summer with windless days. The milk still needs to be processed every day (unlike aluminium). Hence the importance of thermal backing (= Huntly), for the foreseeable future. And as the annual electricity usage (GWh) increases, the % of (hydro) storage effectively decreases. And the only alternative longer term (days or weeks) energy storage is coal and gas

[xafalcon]

Here is the Transpower CEO talking about winter electricity security, further development of the grid, and thermal generation as the backstop

https://www.rnz.co.nz/news/national/508244/rolling-power-cuts-may-hit-this-winter

[winner (n)]

Genesis a bit peeved Supreme Court allowing activist Smith (presumably with blessing of the Iwi Forum) to continue

From BusinessDesk-

Genesis Energy said it was disappointed by the supreme court's ruling.  A full trial would consume extensive time and resources that could be channelled into building more renewable generations.

"The supreme court has, in effect, disregarded the fact that all the defendants have complied with their climate change obligations under the laws of NZ." Genesis did not believe the lawsuit would accelerate the measures or the commitments of the seven companies supporting NZ's transition to a low-carbon future.

[xafalcon]

Genesis a bit peeved Supreme Court allowing activist Smith (presumably with blessing of the Iwi Forum) to continue

From BusinessDesk-

Genesis Energy said it was disappointed by the supreme court's ruling.  A full trial would consume extensive time and resources that could be channelled into building more renewable generations.

"The supreme court has, in effect, disregarded the fact that all the defendants have complied with their climate change obligations under the laws of NZ." Genesis did not believe the lawsuit would accelerate the measures or the commitments of the seven companies supporting NZ's transition to a low-carbon future.

Costs would be payable if the litigation was shown to be without merit, which it will be if the companies are acting within the law

It is "interesting" that Z energy is included, but Mobil, gull, npd, BP, challenge are not. It is "interesting" that fonterra is included, but tatua, synlait, OCD, westland are not.

[winner (n)]

Genesis huge drop in half year profit ...down $107m to $38m


But they say they are a forward looking company so all hunky dory


http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/GNE/426614/413103.pdf