This report is the updated version of the report uploaded on 20 January 2023 at 11:22 PM GMT +13.

Meridian Energy Limited

MEL 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.

Financial Results for FY22

• Operating revenue declined by 6.56% on the prior year to NZD3,703 million due to the impact of lower generation revenue.
• EBITDAF rose to NZD709 million, up NZD17 million or 2.5% on the prior year, supported by healthy retail sales performance in New Zealand
• Net profit after tax increased to NZD664 million, including the benefit of gain on the sale of its Australian business and positive non-cash movements in the value of hedge instruments.
• The Board declared a final ordinary dividend of 11.55 cents per share, taking the total ordinary dividends declared in FY22 to 17.40 cents per share, an increase of 3% over the previous year.

Key Updates

• On 16 January 2023, the company released its monthly operating report for the month of December 2022 and total inflows were 63% of the historical average. MEL’s retail sales volumes during the month grew by 1.4% than December 2021.
• MEL has appointed Benjamin Bateman (Ngāi Tahu) as its next Future Director, effective 28 February 2023
• The company mentioned that it would release its interim results for the six months ended 31 December 2022 on 1 March 2023.

Outlook

The company holds deep pipeline of 2.3 GW (5.4 TWh) of development options. With regards to Harapaki update, the company mentioned that first power milestone of mid-2023 as well as full power by mid-2024 both are on schedule.

Key Risks

Dry periods or drought conditions in the Waitaki or the Waiau catchments could lower water levels and adversely affect its generation capability. MEL operates in the wholesale energy markets and so is susceptible to volatility in forward energy prices.

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)

Stock Recommendation

The stock is trading above the average price of 52-week low-high range for the stock at NZD5.36-NZD4.32, respectively.

The stock has been valued using EV/Sales multiple-based illustrative relative valuation, and the target price so arrived reflects a fall of low double-digit (in % terms). A slight discount has been applied to EV/Sales Multiple (NTM) (Peer Average) considering the current trading levels and risks associated.

Resultantly, it is prudent to liquidate the stock at the current levels.

Hence, a ‘Sell’ rating has been provided on the stock at the closing price of NZD5.360 per share, up by 1.32% as of 20^th January 2023.

Technical Overview:

Daily Price Chart

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

Note 1: Past performance is neither an indicator nor a guarantee of future performance.

Note 2: The reference date for share price chart and stock valuation is based on January 20, 2023. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Disclaimer

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