recent morningstar analsis
Narrow-moat-rated Mercury NZ posted record first-half EBITDA of NZD 301 million, up 11% on the same period last year. The firm benefited from ideal weather conditions, with plenty of rain in the North Island boosting its hydroelectric production, while low South Island rain kept the wholesale price high. Full-year guidance for EBITDA of NZD 530 million is unchanged, and we think the firm can do a little better. We make minor adjustments to our earnings forecasts but maintain our NZD 3.60 fair value estimate. We also adjust our historic and forecast dividend numbers to now include special dividends as well as ordinary dividends.
CEN vs MRP FY2017 'Head to Head' Generation: 1st Iteration
I think it is worth noting the similarities that exist in portfolio capacity between the MCY and CEN hydroelectric and geothermal power stations.
Mercury Energy Hydro |
Station Generation Capacity |
Mercury Notes |
Contact Energy Hydro |
Station Generation Capacity |
Aratiatia |
78MW |
Upgrade by FY2020 |
Hawea Gates |
17MW |
Atiamuri |
74MW |
|
Clyde |
432MW |
Waipapa |
54MW |
|
Roxburgh |
320MW |
Ohakuri |
106MW |
|
Whakamaru |
100MW |
Upgrade to 124MW by FY2020 |
Arapuni |
196MW |
Received 12MW upgrade in FY2011 |
Maraetai 1 & 2 |
352MW |
|
Karapiro |
96MW |
|
Total |
1056MW |
|
Total |
769MW |
Mercury Energy Geothermal |
Station Generation Capacity |
Mercury Notes |
Contact Energy Geothermal |
Station Generation Capacity |
Contact Notes |
Kawerau |
100MW |
|
Ohaaki |
60MW |
Mokai (25% owned) |
112MW |
|
Te Huaka |
28MW |
Completed FY2010 |
Rotokawa |
34MW |
Refurbished FY2015 |
Wairakei |
132MW |
Nga Awa Purua (65% owned) |
138MW |
Completed FY2010 |
Poihipi |
65MW |
Ngatimariki |
82MW |
Completed FY2014 |
Te Mihi |
166MW |
Completed FY2014 |
Total |
466MW |
|
Total |
451MW |
Note that I have left out Contact's gas fired power generation capacity in this comparison. I did this becasue the reason for this comparison is to estimate the 'hidden value' that might be on Contact's balance sheet. Thermal stations usually do not have hidden value as in the medium/longer term they are likely to be phased out of the power supply picture.
A substantial difference between the two companies is that Mercury makes regular adjustments to the value of its generation assets whereas Contact Energy does not. These adjustments have strengthened the balance sheet to the extent that Mercury has build new power stations (e.g. Ngatimariki) without raising new capital. I think Contact could do the same. Given the similarity of the renewable generation portfolio, it seems likely that Contact is sitting on a substantial 'hidden asset' (a potential revaluation of the renewable power portfolio), should management ever decide to take advantage of it, as Mercury management has done. But how much hidden value is there? That is the question I want to answer next.
The weakness in the analogy is that Mercury have upgraded their hydro stations in recent years and have an ongoing program to do more. This will result in a real increase in generation capacity. It is questionable, given Contact's hydro stations are much newer that they can do the same.
SNOOPY