GNE - Genesis Energy

[Beagle]

Appreciate your input Snoopy. This is a small holding for me bought very recently for $2.13. Partly its a hedge against a 5x bigger position in AIR, (oil prices) and partly as a hedge against them being my supplier of LPG. Their run-down of Kupe oil is well known but the reserves of LPG and Gas are far more durable. I'm happy that the recent SP rise is supported by their 5% EPS accretive NOVA purchase and benign long term interest rate outlook that's now foreseen as lower for longer by RBNZ. Take these two factors both announced post my acquisition out of the equation I see Gen at todays price of $2.28 as much the same value as when I recently bought. I know some of the dividend won't be imputed and I'm okay with that.

[Joshuatree]

Anyone got an informed opinion on these new bonds thanks

Terms Sheet linked here

[macduffy]

Anyone got an informed opinion on these new bonds thanks

Terms Sheet linked here

I love that word "informed". Aren't all opinions on this forum "informed"?

[Joshuatree]

Nope ;only yours

[Beagle]

Well Snoopy, see post #2161 above. Less than a month into this and $2.13 to $2.37 isn't too shabby in a sideways market. As suggested earlier my beagle friend, I expect interest rates to be a lot lower for a lot longer than most on here so good old fashioned yield investing is still a good way to build wealth slowly IMO.

[Snoopy]

I have been reviewing my portfolio of high yielding shares, and for each one asking the question:
"As interest rates rise, can this company provide sustainable growth to boost dividends?"

I think looking further than twelve months out, the answer for Genesis Energy is 'no'. So I am now off the share register, having effectively preinvested my original Genesis Energy capital back into Contact Energy over the last couple of years.

All the best to shareholders that remain. Genesis has become much more a play on the price of oil and gas going forwards, so my $2.10 exit may yet prove premature. But I didn't buy Genesis Energy to start speculating on the oil price myself.

Well Snoopy, see post #2161 above. Less than a month into this and $2.13 to $2.37 isn't too shabby in a sideways market. As suggested earlier my beagle friend, I expect interest rates to be a lot lower for a lot longer than most on here so good old fashioned yield investing is still a good way to build wealth slowly IMO.

Glad to see at least one hound still doing well with Genesis. As I explained at the time, I never assumed that I would be selling out at the top. $2.10 had been a long standing resistance point, so happy to sell out at $2.10 at the time. I usually try to leave something for the for the next guy. In this instance, the other hound has had a good hunt.

Since I sold, Genesis have acquired the Nova Energy gas business (with a positive implication for overall gas margins). Also oil prices have risen, boosting the value of Kupe reserves. And a shortage of hydro inflow to the South Island lakes has improved the economics of more thermal generation from Huntly So the share price rise over the last month or so is not unexplained.

My main regret with GNE is not being allocated enough shares on day 1. Then not being knowledgable enough at the time to appreciate the post listing price weakness. Since I have got a handle on the company, it hasn't been obvious, in my judgement, that there was more upside than downside risk. So I felt comfortable in my decision not to increase my holding. Given it was one of my smaller holdings it became vulnerable when I started taking an axe to my shareholding positions, and there was not going back from a single stout chop.

As I said before, good luck to those who remain with Genesis. I am happy to remain with Contact Energy and Mercury Energy.

SNOOPY

[Beagle]

Thanks for your kind words Snoopy. I think the recent rise fully encapsulates the renewed lower interest rates for longer outlook and the Nova gas acquisition and accordingly with oil heading sharply lower again I took profits on this one this morning. Good quick rewarding hunt, time to dig for more value elsewhere.

[Snoopy]

I have been running the numbers for income statement comparison purposes.

	FY2016 31% Kupe owned as published	Difference	FY2016 46% Kupe owned (future retrospective)
EBITDAF	$335.3m	+$39.0m (Genesis given)	$374.3m
Depletion, Depreciation & Amortisation	($127.7m)	-$14.9m (proportional increase on Kupe Assets)	($142.4m)
Revaluation of Generation Assets	$138.0m		$138.0m
Change in Fair Value of Financial Instruments	($26.6m)		($26.6m)
Other gains (losses)	($3.0m)		($3.0m)
EBIT (sub-total)	$316.2m		$340.3m
Finance Revenue	$2.0m		$2.0m
Finance Expense	($65.2m)	-$5.6m (adjustment made to fit)	($70.8m)
EBT (sub-total)	$253.0m		$271.5m
Income tax (calculated at 28%)	($68.8m)	-$7.2m (calculated difference)	($76.0m)
NPAT (total)	$184.2m	+$11.3m (Genesis given)	$195.5m

The above table I created was to produce a representative NPAT figure had the Kupe stake been increased to 46% for the whole of FY2016. I compiled it so that I could use those figures to compare with what might happen in FY2017. It does not take into account the supply chain synergies available from the subsequent acquisition of 'Nova Gas', nor what would happen if FY2016 had a similar 'low water inflow to South Island lakes' as appears to be likely in FY2017.

Nevertheless it is still relevant in highlighting the 'profit effect' of a portion of the generation asset revaluations that went to the bottom line in FY2016. $138m (or $105m after tax) was over 50% of the declared NPAT for FY2016. How on earth are Genesis going to replace that 'one off' profit in FY2017? Are the recent, and probably transient for FY2017, favourable market changes for thermal power generation going to be worth $105m to Genesis in FY2017? It seems very unlikely. This is the principal reason why I sold out, albeit too early with the benefit of hindsight.

I have done a separate analysis on cashflow (my post 2132) which shows that Genesis will likely have enough cashflow to keep paying dividends for the next year or two at FY2016 levels, or a bit higher. But after that? Eventually an underlying profit worth only half the current dividend payments must catch up with shareholders. And that implies a medium term decline in share price from about $2.30 today to around $1.15 - a very serious risk for those who can't see past the current dividend payment rate.

Thanks for your kind words Snoopy. I think the recent rise fully encapsulates the renewed lower interest rates for longer outlook and the Nova gas acquisition and accordingly with oil heading sharply lower again I took profits on this one this morning. Good quick rewarding hunt, time to dig for more value elsewhere.

Roger's nerves were steadier than mine. That was what allowed him to make a superior 'great escape' from the hypnotic GNE dividend genie!

SNOOPY

[Beagle]

Not really steady nerves mate, just a quick hound hunt and found a juicy rabbit to eat, (got lucky with the timing of the EPS accretive Nova acquisition) and get the sense there's better hunting grounds out there now. My sense is there's pockets of real value coming into the market in SUM places.

[Xerof]

switch the power off and retire Roger