GNE - Genesis Energy

[Basil]

I had the full GNE immersive experience this week and I think its about fairly priced.  I've heard the full story and I think it deserves a lower risk premium which explains why the share price is where it is.

[winner (n)]

As 10 Year NZ Govt gets closer and closer to 5.0% by the hour it seems the GNE share price starts to fall

Spooky as eh possums

[Basil]

Craigs have released a comprehensive paper outlining that based on valuing GNE's hydro assets at the same multiple as its peers, you're almost getting all GNE's other assets for free.  I had a good read through this today and they make some excellent points and the research looks sound.
If I recall correctly a couple of years ago Jarden opinioned along similar lines.

Craigs outlined the execution risk of creating so much generation to displace legacy generation assets in the next 6 years.

Their price target is $3 but I note they are the outlier with the consensus price target at $2.58.

Interestingly in Craigs view dividend growth can recommence after the fixed period that we're currently in subject to inflation adjustments, from FY29 onward.

I am not entirely convinced and think their debt will be pushing up towards the top end of the comfort zone as the development of their full suite of ~ $2 Billion of new renewable assets reaches a conclusion in FY32.

That said, its an interesting one from a dividend hounds perspective because not only do they have the highest yield by a country mile compared to the other Gentailiers, its appears they can maintain this in the medium term after they roll out their full suite of new renewable assets and then money made from legacy assets for as long as they last is cream on top of what looks like a fairly tasty cappuccino.

I've rethought my investment thesis and come to the initial conclusion that this will probably remain a sound dividend hounds investment for the foreseeable future despite the relatively limited life of GNE's legacy assets..  I'm a real doubting Thomas about Craigs estimate of 21 cps dividends in FY32 but I believe its plausible they could maintain their current trajectory of nearly matching annual inflation adjustments for future dividends from their current lower base.

Its still a mystery to me why the board promises they will match inflation adjustments but never quite gets there.  This pattern goes right back to when they were first listed.    Its puts me off a bit however I think they're a sound hold here.  Time will tell if they can get back to $3.  I have serious reservations about that and my gut tells me the consensus analyst target price of $2.58 seems far more plausible.  I'd be very happy for GNE to prove me wrong of course.
Noting too, the chart looks pretty good and it busted out to a fresh 1 year high last Friday.  A long way to go to get back to its glory days of $3.90 though. 

[winner (n)]

Good overview there basil

GNE share price on move ..... in 260's today

Onwards and upwards but a way to go to eliminate that ESG Discount and Risk Premium relative to others in sector

�But $4.06 sounds good if that achieved eh

[Basil]

As I understand it they aim to be 100% renewable by FY32 with legacy assets remaining as firming capacity for dry periods and / or periods when the sun doesn't shine and / or the wind doesn't blow..

You'd think if that's the case then the ESG discount should be completely or almost completely eliminated by FY32.

Unfortunately I suspect many institutional investors have quite simplistic ESG investment guidelines that are as simple as, if there's coal involved, we're can't be involved, even if its just used spasmodically as a way to firm up the electricity system so it can be 100% renewable ninety something percent of the time.

I think if that's the case in the future and maybe now as well and GNE still trades at a material ESG discount then that's probably an opportunity for investors who use more common sense ESG investing criteria or who use none at all and like me, are just grateful that Huntly helps keeps the heaters on in Auckland in winter.

$4 something would be wonderful Winner but I'm not holding my breath for that.
Disc: Added a few more to my portfolio quite recently.

[winner (n)]

Basil ...that $4.06 is what GNE would be trading out if priced in line with peers

That ESG Discount / Risk Premium huge eh ....36%

[Basil]

Here's an interesting thought experiment. The fact is in a dry year the other gentaliers have far more variability to the earnings than Genesis does. Genesis earnings are more consistent than the other generators with lower volatility so theoretically are actually worth more.

Closing the gap to trade on the same metrics would give a 56% gain. Maybe we'll see some or most of that gap closed over the next 6 years as their generation portfolio becomes almost all renewable ?

[winner (n)]

Here's an interesting thought experiment. The fact is in a dry year the other gentaliers have far more variability to the earnings than Genesis does. Genesis earnings are more consistent than the other generators with lower volatility so theoretically are actually worth more.

Closing the gap to trade on the same metrics would give a 56% gain. Maybe we'll see some or most of that gap closed over the next 6 years as their generation portfolio becomes almost all renewable ?

Is part of the 'discount' due to stuff all increases in dividends over the years

Mercury paying a much bigger divie now than 6 years ago ...how about the others

[Basil]

Could be. That's worth looking into. Mind you Craigs reckon 21 cps in dividends is possible for GNE in FY32.

[Left Field]

NZ energy investors would be wise not to ignore IFT

I attended an IFT shareholders meeting today and was amazed to hear these details of Longroad's USA energy builds.

Importantly for IFT shareholders; These energy builds are already contracted (in order to gain USA Tax credits)  the land has been aquired, and either building has commenced or orders placed for the necessary equipment. In addition the resultant renewable energy is also already contracted out once production starts.

In short, Longroad have contracted USA renewable energy contracts for 13.7 GW of electricity by 2030......that's 2.5 GW more than the total electricity being produced in NZ currently.

To put this into context;

By 2027 Longroad will be producing more electricity than Mercury, Contact energy and Genesis combined.

By 2028 Longroad will be producing more electricity than Mercury, Contact energy, Genesis and Meridian combined.

By 2029 Lonroad will be producing 2.5 GW more electricity than the total currently being produced in NZ

By 2030 Longroad will be producing  a total of 13.7GW of renewable electricity.

IFT is not only an impressive data centre play, it is  also a huge renewable energy play.

[Plata]

The recent capital raise has to be one of the most profitable on the nzx in recent times no? I went a bit above my 7% max allocation on this one and I'm glad it didnt blow up in my face for once.