10 Feb 2014

Genesis to produce audited accounts

7:13 am on 10 February 2014

Genesis Energy will produce audited first-half accounts on Wednesday, a move widely interpreted as a harbinger of its float by the Government.

Having already sold 47.2 percent of Mighty River Power and 49 percent of Meridian Energy, the Government also plans to sell up to 49 percent of Genesis.

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Genesis is widely viewed as the ugly duckling of the three, particularly because it owns the Huntley coal-fired power stations.

Devon Funds Management analyst Phill Anderson says because of the poor performance of Mighty River Power and Meridian shares since they began trading on the NZX, the Government will probably have to accept less than $1 billion for Genesis.

He says there might have to be a 10 percent discount on Genesis, considering its asset mix of a thermal coal plant. Mighty River and Meridian have longer term assets in hydro schemes of the Waikato and the Waitaki.

Mr Anderson expects Genesis will have first half year Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) of around $170 million.

He says Genesis won't be a must-own stock for institutional investors because there are plenty of other power companies to chose from. Genesis will bring the number of listed electricity retailer-generators to five.

Genesis could be 'surprisingly successful'

However, Milford Asset Management analyst Mark Warminger says the Genesis float could be surprisingly successful.

He is not expecting a lot of demand from retail purchasers because they have not had a good experience with regard to the earlier two power company sales, but instutions may be attracted to the offer.

"Ironically because Genesis is the 'ugly duckling' and it should come at quite a cheap valuation with a good dividend yield potentially you will see some good demand from institutions in this float playing the valuation game."

Mr Warminger says Genesis has a large retail book and tends to charge quite cheap prices, and over time those prices could increase so the company could achieve good earnings growth in the future.

He says if the firm also cuts costs and achieves better operational efficiency it could turn out to be quite a successful float.

Mr Warminger believes the yield offered on Genesis shares will have to be far higher than the gross dividend of about 10 percent of 2015 earnings which shares in Mighty River Power and Meridian are trading at. That's because the assets Genesis owns are of lesser quality and the sustainability of its earnings is open to question due to issues such as Huntly's long-term future.