GNE - Genesis Energy

[mfd]

I think the dirty little secret that nobody wants to talk about is that the huge amount of investment required to get into the high 90% range of renewable energy generation by 2035 is going to be passed onto customers with much higher energy prices over the next decade. Good example over the Tasman where Australian energy prices are up more than 30% in the last year.

John's sounds very confident GNE will earn mid to high $500m EBITDA by FY28. Expect price increases every year.

I broadly agree with this, I expect prices to continue to rise. But I do want to point out that 30+% rise in the Australian index is really an artifact of what sounds like some very messy rebate and relief fund systems. The underlying increase is actually 5% over the year, which is still comfortably higher than inflation.

[Plata]

The issue is that we have crossed the threshold where urban properties are starting to be better off installing solar+battery systems and disconnecting from the grid. The cost of the components has come down so much in recent years, I think most homes would save money disconnecting and going solar+battery if it was self-installed then electrician certified (even accounting for opportunity cost). For now all the margins and install costs for getting someone like Harrisons to do it are stopping widespread disconnection, but every year the components get cheaper and power prices go up, it could seriously undermine the demand growth most of these development pipelines hinge upon. I don't expect it will weigh too heavily on GNE though, it helps in a way that the rankines aren't expected to survive past 2040 so won't be stranded assets.

I've got a few of these already, but hopefully we see some $2.30s action and maybe I'll need a few more 0_o

[Basil]

The issue is that we have crossed the threshold where urban properties are starting to be better off installing solar+battery systems and disconnecting from the grid. The cost of the components has come down so much in recent years, I think most homes would save money disconnecting and going solar+battery if it was self-installed then electrician certified (even accounting for opportunity cost

I'm not convinced.  Banks have been offering 1% loans for new green initiatives for several years now e.g. ANZ good energy loan for up to $80,000 https://www.anz.co.nz/personal/home-loans-mortgages/loan-types/good-energy/ and yet only 3% of houses have rooftop solar systems.  If the numbers really did work even at 1% finance the uptake rate would be higher.

The only friend I know that's had a go endured a 4 year fiasco with two companies going under during the process and a failed invertor and failed battery.  A lot of the equipment comes out of China and from what I have seen, there can be a lot of problems getting the system to work and then reliability issues thereafter. 

A full off grid system also requires a really big battery system and a decent back up generator and the appropriate peak load switching equipment.  A full family sized off grid system is not cheap by any means, I hear some talk of around $40K with a proper sized diesel generator backup system and there's ongoing maintenance with annual servicing of the generator and invertor's don't last all that long and are expensive to replace.  Lithium ion batteries don't last forever either and when you start factoring in replacement of them every 10 -15 years or so, the numbers look even less convincing.

[entrep]

The issue is that we have crossed the threshold where urban properties are starting to be better off installing solar+battery systems and disconnecting from the grid. The cost of the components has come down so much in recent years, I think most homes would save money disconnecting and going solar+battery if it was self-installed then electrician certified (even accounting for opportunity cost). For now all the margins and install costs for getting someone like Harrisons to do it are stopping widespread disconnection, but every year the components get cheaper and power prices go up, it could seriously undermine the demand growth most of these development pipelines hinge upon. I don't expect it will weigh too heavily on GNE though, it helps in a way that the rankines aren't expected to survive past 2040 so won't be stranded assets.

I've got a few of these already, but hopefully we see some $2.30s action and maybe I'll need a few more 0_o

Is it one of the major attractions that you actually stay connected to the grid and can sell your excess energy back?

[Plata]

The main gist of what I'm saying is that what we are seeing is inflation in power prices, and deflation in the cost of self-generated power. While it isn't the case now, those two trends can't go on forever without something breaking.

Is it one of the major attractions that you actually stay connected to the grid and can sell your excess energy back?

Yeah if you have no use for the power it helps the economics to sell it, but these days you can have it just dump into a load of choice like hot water cylinder. Skipping those daily charges can save $700+ p/a, so it isn't always clear cut.

[entrep]

Became a holder today. Seems like a safe defensive stock with good yield to hold into what I think will be an uncertain 2026. Also making higher highs and lower lows.

[Basil]

Welcome on board Entrep. Forbar forecasting 14.5 cps in dividends in FY26 (14.8 and 15.1 cps for FY27 and FY28 respectively), fully imputed, that's 14.5 / 0.72 = 20.14 cps gross giving a gross yield at $2.38 of 8.46% capable of being increased to (8.46 / 0.975) 8.67% for those who takes shares in lieu of dividend at the 2.5% discount.  I think that's an attractive and defensive yield especially in a low interest rate environment and also because the yield increases a bit each year so I recently added a few more.  Its good pragmatic risk management to have some of your portfolio in defensive investments.

[Plata]

I've gone over the investor day documents again and I think there is a moderate chance they capital raise to fund castle hill wind farm in the next 2 years. They are spending money on getting connections to the site. They also mentioned equity raising as a possible funding source, which is a new occurance and obviously related to the government announcement saying they are up for it. Those docs were released on the 26th nov, same day as the OCR cut and unexpected commentary suggesting no further cuts. I'm temped to buy more of these but I can't figure out why the share price has deteriorated like this. The other gentailers have also taken a hit for the most part, yet property stocks which are similarly OCR sensitive have not.

[Mos]

Taking a look at the NZX release, Genesis have a Chief Corporate Affairs Officer "Master of Ceremonies for the Investor Day", a Group Communications Manager, and an Investor Relations Manager. What do these people do all day - surely there are only so many sausage rolls to round up?

[Basil]

Taking a look at the NZX release, Genesis have a Chief Corporate Affairs Officer "Master of Ceremonies for the Investor Day", a Group Manager Communications Manager, and an Investor Relations Manager. What do these people do all day - surely there are only so many sausage rolls to round up?

They kicked off the first day with a Karakia....bet analysts were impressed with that and it must have taken a ton or organizing.  Even more "impressive" the second day field trip included meeting with local Iwi to learn about all the cultural values they held about the lake.  These things take a LOT of organizing you know. and must have super impressed the analysts that attended.

[Basil]

Average of 5 analysts see fair value of $2.56 and that will be before the recent positive developments in the industry.

Consensus of 5 analysts is now $2.55, post the investor day.  1 cent taken off for being far too woke ?
Forsyth Barr noted in its report, changes to the minimum lake level methodology at Tekapo will allow more effective hydro generation and have lifted their EBITDAF calculation by $8m as a result and are now forecasting FY26 EBITDAF at $501m, $16m above the top of GNE's own forecast range.

Keep in mind this years result is affected by a $60m one-off technology upgrade so the outlook for FY27 and FY28 EBITDAF is quite plausible to be in the late $500m range.

Lets see how this price fall plays out.  If it drops another 10 cents I think I will be seriously tempted to go pretty BIG on this on a ~ 9.1% gross yield (calculated as such based on taking advantage of the 2.5% DRIP discount at $2.27).

[Ricky Bobby]

Commercial Power prices have dropped significantly in the last month(dams are full!)Prob seeing that come through with the softening share price?

[lorraina]

Forbar;
The lakes are full to the brim
All of the main South Island hydro catchments are currently spilling water following continued strong inflow. NZX Energy is reporting hydro lakes are at 97% of maximum and 155% of average, the highest since June 2023. GNE is the main beneficiary from current conditions as it benefits the most from being able to switch off its thermal generation and lower its generation costs.

[Plata]

They kicked off the first day with a Karakia....bet analysts were impressed with that and it must have taken a ton or organizing.  Even more "impressive" the second day field trip included meeting with local Iwi to learn about all the cultural values they held about the lake.  These things take a LOT of organizing you know. and must have super impressed the analysts that attended.

Don't forget they doubled "community contributions" to nearly $6 million. People really are quite generous when it is other peoples money being given away... Although maybe it distracts the residents of Huntley from thinking about that coal boiler plume 

[Plata]

Forbar;
The lakes are full to the brim
All of the main South Island hydro catchments are currently spilling water following continued strong inflow. NZX Energy is reporting hydro lakes are at 97% of maximum and 155% of average, the highest since June 2023. GNE is the main beneficiary from current conditions as it benefits the most from being able to switch off its thermal generation and lower its generation costs.

Keeping the thermal plants cold is likely helpful for extending their lives too, less component wear and less thermal cycles.