Meridian Energy Limited

MEZ Details

Meridian Energy Limited (ASX: MEZ) is engaged in generating 100% renewable energy from renewable sources - wind, water, and sun. It supplies electricity to its customers from the electricity grid, which combines electricity supplied from renewable and non-renewable sources.

H1FY22 Results Performance (For the Half Year Ended 31 December 2022)

• MEZ has delivered a net profit after tax of $145 million from continuing operations, down by $82 million (36%) from the same period last year, primarily due to adverse changes in the value of hedge instruments.
• Excluding these hedge value movements, EBITDAF was reduced by $1 million and the underlying net profit after tax decreased by $5 million.
• The board has declared an ordinary interim dividend of 5.85 cents per share, an increase of 2.6% than for the same period last year.
• The company completed the sale of MEA on 31 January 2022, and it plans to recognise a gain on the deal in FY22.

Source: Company Reports, Analysis by Kalkine Group

Recent Update

• On 18 May 2022, Transpower released a revised indicative transmission pricing update, which stated that the revised indicative numbers revealed a $14 million per annum cost-saving for Meridian from the current TPM against the earlier indicative pricing published on 27 April 2022, where it announced cost saving of $26 million per annum

Operating Performance for April 2022

National hydro storage reduced from 81% to 76% of the historical average in the month to 15 May 2022. The company’s monthly total inflows stood at 71% of the historical average. Its Waitaki catchment water storage at the end of April 2022 stood at 79% of the historical average, while the water storage in Meridian’s Waiau catchment remained below the average at the end of April 2022. The company’s retail sales volumes in New Zealand in April 2022 increased by 3.1% from April 2021.

Outlook

The company has started bulk earthworks at its Harapaki wind farm development in Hawke’s Bay. It has been vigorously working to increase its renewable development pipeline, which includes the development of Ruākākā Energy Park. It has identified four potential partners for the next phase of the Southern Green Hydrogen project. It is assessing proposals from each of the four counterparties to develop Southland's production and export facility. Besides, the company’s balance sheet remains in a strong position, maintaining a BBB+ credit rating.

Key Risks

The company is exposed to risks related to adverse hydrological conditions such as dry periods or drought conditions in the Waitaki or the Waiau catchments, which may result in lower water levels and substantially hurt its generation capability. Further, it is susceptible to catastrophic events like a major earthquake, landslide, fire, flood, cyclone, explosion, or act of terrorism that would adversely affect its power stations or the national high voltage transmission grid.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

Technical Overview

Daily Price Chart

Source: REFINITIV, Note: Purple color line reflects Relative Strength Index (14-Period)

Stock Recommendation

The stock is trading lower than the average of the 52-week high price of $5.19 and the 52-week low price of $4.02.

The stock has been valued using an EV/EBITDA multiple-based illustrative relative valuation, and the target price so arrived reflects a rise of low-double-digit (in % terms). A slight premium has been applied to the EV/EBITDA Multiple (NTM) (Peer Average), considering its higher New Zealand customer numbers and retail sales volumes.

Considering the aforementioned factors, we give a “Buy” recommendation on the stock at the closing market price of $4.17 per share, down by 0.95% as of 23 May 2022.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Meridian Energy Limited (MEZ) is a part of Kalkine’s Global Green Energy Product

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices