About the Company

Genesis Energy (ASX: GNE) is New Zealand's largest electricity and gas retailer, supplying energy to one in four Kiwi households through its two retail brands: Genesis Energy and Energy Online. The company also owns and operates a portfolio of Thermal and Renewable generation assets located in different parts of New Zealand. Thermal generation at the Huntly Power Station is the largest electricity generation facility in New Zealand. Renewables includes three hydro schemes, Tongariro, Waikaremoana and Tekapo, comprising eight power stations. The company also has a series of wind farms located in the North Island. Genesis has a 31% interest in the Kupe Joint venture, which owns the Kupe oil and gas field.

Energy consumptions in New Zealand, as experienced in Australia has levelled off in the last few years reflecting a combination of weakness in economic activity and an increase in more efficient technology requiring less energy. We expect economic growth to pick up in 2018 and underlying demand will continue to drift up, driven by population growth and improved economic activity. GNE is a low-cost producer of electricity utilising its wind and hydro facilities to supply energy into the national grid. The company is beholden to the wholesale transmission pricing methodology adopted by the NZ Electricity Authority with ongoing reviews of pricing adding regulatory risk. While a change in methodology can restrict returns, we expect policy will acknowledge operators need to obtain an economic return from their invested capital and the authority adds an element of market protection to ensure ongoing investment within the industry even during periods of lower energy usage.

Our View

GNE is a large and diversified utilities company generating over NZ $2billion in annualised revenue. Consistency of cash flow ensures this company makes an ideal investment for an income focused investor seeking a reliable dividend stream.

Since listing the company has initiated a process of reorganisation to optimise the operations, derive efficiency and remove cost. This ongoing transformation project has removed $6m in annualised cost for the first half of fiscal 2017. Lower operating costs result in an increase in profit margin with market consensus forecasting GNE to generate a 15% increase in earnings for fiscal 2018. We view the company offers investors a combination of capital growth derived from costs out initiatives while also paying an attractive dividend yield of 6.6%.

Source: HALO Technologies – 10:30am AEDT, 30.08.2019

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