This report is an updated version of the report published on 10^th May 2022 at 4:39 PM (GMT +12)

Meridian Energy Limited

MEZ Details

Meridian Energy Limited (NZX: MEL) 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.

Results Performance for the Half Year Ended 31 December 2021 – H1FY22

• The net profit after tax stood at $145 million from continuing operations, down by $82 million (36% YoY), mainly due to adverse changes in the value of hedge instruments.
• Excluding these hedge value movements, EBITDAF (Earnings before interest, tax, depreciation, amortisation, changes in fair value of hedges and other significant items) decreased by $1 million to $394 million.
• The board announced an ordinary interim dividend of 5.85 cents per share, up 2.6% YoY.

Source: Company Reports, Analysis by Kalkine Group

Operating Performance for The Month of March 2022

• National hydro storage decreased from 102% to 81% of the historical average in the month to 12 April 2022. The company’s monthly total inflows stood at 38% of the historical average, the lowest March month inflows on record.
• Its Waitaki catchment water storage at the end of March 2022 stood at 92% of the historical average, while the water storage in Meridian’s Waiau catchment remained at 24% of the average at the end of March 2022.
• The retail sales volumes in New Zealand in March 2022 increased by 5.9% from March 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 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/Sales 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 $5.47 and the 52-week low price of $4.33.

The stock has been valued using an EV/Sale 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 EV/Sales Multiple (NTM) (Peer Average), considering its higher New Zealand customer numbers and retail sales volumes in Q3FY22.

Considering the aforementioned factors, we give a “Buy” recommendation on the stock at the current market price of $4.54 per share as of 10^th May 2022 (New Zealand Time: 3:31 PM (GMT +12)).

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.

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.

Disclaimer

Kalkine New Zealand Limited is authorised to provide general advice only. The information on this website does not take into account any of your investment objectives, financial situation or needs. Before you make a decision about whether to acquire a financial product, you should obtain the Product Disclosure Statement from the product issuer. You should consider the appropriateness of advice taking into account your own objectives, financial situation and needs and seek independent financial advice before making any financial decisions.