GNE - Genesis Energy

[winner (n)]

Thanks for the charts Winner.

Interesting times. With recent cost increases, high fixed charges etc a mate of mine made the decision to scrap their gas water heater and gas range top to go all electric ( est 3 yr pay back.)

His longer term plan is to go all Solar/battery.

I suspect a lot of consumers will be re thinking their utility accounts these days.

As one company told a customers who queried the high power bill 'just put more clothes on'

[Basil]

As one company told a customers who queried the high power bill 'just put more clothes on'

I hear this frequently with my wife...complaining about the cold while walking around bare feet and not dressed in winter attire.  I'm often inclined to suggest to her to put more clothes on rather than turning up the heater as we don't own a power station...but I have to keep checking myself on that comment seeing as GNE divvies pay the annual power bill several times over lol
P.S. Forgot to mention earlier.  Forsyth Barr price target for GNE is $2.60.

[Stoploss]

I hear this frequently with my wife...complaining about the cold while walking around bare feet and not dressed in winter attire.  I'm often inclined to suggest to her to put more clothes on rather than turning up the heater as we don't own a power station...but I have to keep checking myself on that comment seeing as GNE divvies pay the annual power bill several times over lol
P.S. Forgot to mention earlier.  Forsyth Barr price target for GNE is $2.60.

Most guys generally suggest to their wives to get more clothes off

[Basil]

There's been some very satisfactory developments in the energy market this week with the Govt supportive of the current structure, calling for a LNG import terminal and other Gentailiers recently buying into the whole Huntly firming options deal which is supportive of overhauling and maintaining the third Rankine unit.

Its seems to me at $2.35 GNE has been a little overlooked in the race to secure safe and reliable yield as interest rates decline at pace.  Noting forecasts of 14.6 cps fully imputed, 20.28 cps gross for FY26 and a commitment to increase that in line with inflation which adds an extra positive twist to the current forecast yield of 20.28 / 235 = 8.63%, (8.85% gross if you take advantage of the shares in lieu of dividend scheme at a 2.5% discount).

Average of 5 analysts see fair value of $2.56 and that will be before the recent positive developments in the industry. https://www.marketscreener.com/quote/stock/GENESIS-ENERGY-LIMITED-17595957/consensus/
Opportunity knocks ?  I'll try and wade all the way through the annual report, (pretty bulky document) over the next week or so and share any extra insights I come across.  ~ 7% portfolio position which I might take up a little bit higher if the share price stays where it is and the RBNZ cut 50 bps next week.
Probably a bit overlooked and I have probably have most of the shares I really want in GNE already is how I am perceiving this one at present.
I think their advertising with the family and the cute Beagle is pretty good stuff.  Not brilliant like Tina and Turners original advertisements, but a solid 8.5 out 10 effort.  Bonus marks for using a very cute Beagle lol

[Basil]

Slowly making my way through the annual report.  Highlights so far, the headline revenue and profit growth numbers look solid to me.  Taxable EPS is sufficient so it appears to me that full imputation is no longer in question so should be 100% going forward.  Its not immediately clear to me how John's is planning on lifting EBITDA from late $400m's to mid to late $500m's over the next three years but they are having an investor day next month and talking a lot more about that and capital allocation.  Hopefully that sheds some much needed light on their future plans.

The adorable Beagle add is apparently # 5 most popular advertisement.
Sorry, not much more to add at this stage.  Hopefully some of you got in at $2.35 as I see its finally broken above $2.40 today.
Not sure what to make of GNE going their own way with future solar plans rather than J.V, (NZX release today)...I guess they see that as more capital efficient... the market seems to like it.

[Plata]

Seeing good motion here now. If we compare other high yielding defensive stocks like KPG, ARG, SPG to GNE over the last 6 months we can see a significant divergence has occurred You cannot view this attachment. with GNE not receiving quite the same uplift as the other names. If it had, share price would be ~$2.8 now. Are the drivers behind the property stocks rise over this period less impactful to GNE?

The joint venture dissolving is interesting. I wonder if it has anything to do with the govt announcing they are on board with capital raising. Perhaps GNE will ask the govt to move to 100% DRP participation, the extra capital from that would probably be enough to get going on some of their solar projects, maybe even a staged castle hill windfarm.

[Basil]

Are the drivers behind the property stocks rise over this period less impactful to GNE?

The short answer is yes.  With lower interest rates the REITS benefit with lower funding costs, (swap rates have fallen heaps which form the basis for their funding costs), lower capitalization rates leading to increased NTA, increased economic activity leading to more occupancy and better demand for commercial space and increased rent per sq meter which leads to earnings and dividend growth which the market pays a higher multiple for because of lower interest rates.  Lower interest rates creates a virtuous flywheel circle of value creation for REIT shareholders.

GNE will also benefit as well from lower funding costs, higher economic activity boosting demand for power and higher profits and dividends.  I think analysts are awaiting details from their investor day next month and there is likely to be revisions upwards to their average price of $2.56 in due course.  $2.80 is not out of the question at all but good things take time.   

[Plata]

The short answer is yes.  With lower interest rates the REITS benefit with lower funding costs, (swap rates have fallen heaps which form the basis for their funding costs), lower capitalization rates leading to increased NTA, increased economic activity leading to more occupancy and better demand for commercial space and increased rent per sq meter which leads to earnings and dividend growth which the market pays a higher multiple for because of lower interest rates.  Lower interest rates creates a virtuous flywheel circle of value creation for REIT shareholders.

GNE will also benefit as well from lower funding costs, higher economic activity boosting demand for power and higher profits and dividends.  I think analysts are awaiting details from their investor day next month and there is likely to be revisions upwards to their average price of $2.56 in due course.  $2.80 is not out of the question at all but good things take time.   

I'm not confident on this (been a while since I looked) but both GNE and the property companies tend to use interest rate hedging to similar degrees. Are the funding costs really going to drop that much faster for the property companies to justify this divergence?

Also, I'd question whether changes in ARG or KPG NTA have much bearing on share price compared to dividend yield vs the prevailing interest rate.
I can't speak for the other points, no idea

My feeling is that at least in the short term e.g. 1 year, the property stock price movement is predominantly driven by interest rate vs dividend yield spread and if this is the case, the same should apply to GNE making it potentially undervalued at this time.

[Basil]

I agree GNE is undervalued.  Said as much in post # 813 above.  Sorry I don't have the time to do a deep dive into their respective interest rate hedging policies.

[Shareguy]

Nice

https://www.nzx.com/announcements/460566

[winner (n)]

GNE share price behaving in line with its correlation with the 10 Govt bond rate

Currently spread between divie yield and 10 year rate is 2.7% (with imputation and after tax). This is slightly below the average of the last 4 years.

GNE share price went over $2.50 early last year. Back then 10 year rate was 4.7% ...it's now just below 4%. (GNE over priced back then)

GNE still trading at that so called 'ESG discount'. Getting rid of that would reduce the divie yield and the spread to the 10 year rate which essentially issaying the market sees Genesis less 'risky' as in the past. Of course we'd get good capital gains eh.

Recent profit upgrade was comforting but to me nothing to really write home about

[winner (n)]

That ESG discount they talk about

The average of CEN,MEL,MCY and VCT gross yields is 5.13% (NZX data)

GNE gross yield is 8.07% - could say the ESG discount is about 36% ... quite significant

Another way of looking at is if GNE traded at a 5.13% the share price would be $3.90 which is about 55% higher than now.

GNE undervalued or is it more 'risky' than its peers to 'deserve' that premium. Interesting debate

[winner (n)]

Admission - I know very little about NZX listed power companies. I do have some GNE mainly as a dividend play.

Noticing that average yield of the other 4 power companies dividend yield is just over 5% gross I wondered what have been the share price returns over the years.

In the table below

A bit mixed .... seems if you want decent capital gains you need to pick the right one at the right time

Probably need to see how dividends have increased to make any real judgement if these stocks are solid long term holds.

You cannot view this attachment.

[Plata]

Maybe the discount stems from GNE having lower quality assets. The rankines and CCGT make money now, but the value of these is impacted by alot of factors that just dont matter (at least directly) to something like a hydro station. For example, say gas prices continue to spike, netback on CCGT generation will likely decline.

I think it is undervalued at the moment but I think some level of discount is definitely justified.

[Huffboy]

Using Manawa purchase price as baseline... Genesis hydro (assuming rankines, gas, retail are worth 0) is undervalued.