Mercury's Hidden Power Stations (FY2022 Perspective)
EOFY2022 and we have the the former Tilt NZ based windfarms and the first stage of the Turitea wind farm 'on the books' and generating.
Mercury Windfarms EOFY2022 |
Commissioned |
Generation Capacity |
Waipipi |
2021 |
133MW |
Tararua I & II |
1998,2004 |
68MW |
Tararua III |
2007 |
93MW |
Mahinerangi I |
2011 |
36MW |
Turitea North |
2021 |
119MW |
Total Completed Capacity |
|
449MW |
Capacity generation will not be achieved unless all of the windfarms are running 24/7. This isn't going to happen. So I will use a capacity reduction factor of 43.2% (see post 1321) to account for this. Combining this information with other information on existing hydro-electric and geothermal energy generation capacity and utilisation gives us an EOFY2021 picture.
Generation Asset Class |
Existing Generation Capacity |
Usage rate |
Effective Generation Capacity |
Hydro |
1063MW |
51.4% |
546MW |
Geothermal |
463MW |
94.0% |
435MW |
Wind |
449MW |
43.2% |
194MW |
Total |
|
|
1175MW |
The yet to be constructed Turitea 2 is designed to deliver 103MW of generation capacity, or
103MW x 0.432 = 45MW of effective generation capacity
With the equivalent of seven of these stations already funded to be constructed (post 1460), the incremental value embedded in Mercury shares which is already embedded above existing production capacity is:
1 + (7 x45MW)/(1175MW) = 1.268 or +26.8%
Giving value to some of Mercury's own consented power stations, which apart from Turitea South, have not been given the go ahead yet is a strange concept. But it does appear the market is doing just that. Because IMO, the current MCY share price is very difficult to justify on Mercury's earnings today. My explanation is that 'everyone needs power' and the country is on the path of 'renewable electrification'. So even though not all of the Mercury consented power stations are yet built, there is reasonable certainty that they will be. And people are prepared to pay for 'certain cashflow', even if it is a few years away.
SNOOPY
Capitalised Dividend Valuation (FY2022.5 view) Part 1: Data
Quote:
Originally Posted by
Snoopy
Financial Year |
Normalised 'eps' |
Net Dividend Paid (per share) |
Gross Dividend Paid (per share) |
2016 |
10.3c |
8.4c + 2.5c(S) + 5.7c |
11.67c + 3.47c + 7.92c = 23.06c |
2017 |
12.1c |
8.6c + 2.88c(NI,S) + 5.8c |
11.94c + 4.0c + 8.06c = 24.00c |
2018 |
14.0c |
8.8c + 5.0c(S) + 6.0c |
12.22c + 6.94c +8.33c = 27.49c |
2019 |
11.7c |
9.1c + 6.2c |
12.64c + 8.61c = 21.25c |
2020 |
11.6c |
9.3c + 6.4c |
12.92c + 8.89c = 21.81c |
2021 |
10.1c |
9.4c + 6.8c |
13.06c + 9.44c = 22.50c |
2022 |
11.6c |
10.2c + 8.0c |
14.17c + 11.11c = 25.28c |
Notes:
1/ The above 'per share' table is based on the 1,400m MCY shares on issue.
2/ (NI) means 'Not Imputed', (S) means 'Special Dividend'.
3/ 'Normalised eps' = 0.72x(EBITDAF-DA-I) / 1,400 shares on issue
For this valuation technique, I work with all dividends. Despite special dividends not being repeatable, they are paid frequently. And, using this particular valuation method, I have not recognised these special dividends as a benefit for shareholders in any other way.
From the table, the average annual normalised gross dividend payment over FY2017 to FY2021 inclusive has been:
(24.00c+27.49c+21.25c+21.81c+22.50)/5 = 23.41c
From the table, the average annual normalised gross dividend payment over FY2018 to FY2022 inclusive has been:
(27.49c+21.25c+21.81c+22.50+25.28)/5 = 23.67c
Big Announcement: I am changing my dividend analysis by looking at the previous four years of dividends paid, not the previous five years as before. In an analysis such as this, there is always a balance between gaining enough data to cover a 'business cycle', but not gathering so much data that the oldest becomes too historic and irrelevant to be a predictor of future dividends going forwards. Competitor Contact Energy has announced that they will be paying dividends on the basis of cashflows from the previous four years. I don't have a strong view as the whether using four or five years worth of dividend data is preferable. But since Contact has chosen four years, and they probably have a better idea of the better representative earnings period than I do, I am from now going with four years.
Financial Year |
Normalised 'eps' |
Net Dividend Paid (per share) |
Gross Dividend Paid (per share) |
2019 |
11.7c |
9.1c + 6.2c |
12.64c + 8.61c = 8.61c |
2020 |
11.6c |
9.3c + 6.4c |
12.92c + 8.89c = 21.81c |
2021 |
10.1c |
9.4c + 6.8c |
13.06c + 9.44c = 22.50c |
2022 |
11.6c |
10.2c + 8.0c |
14.17c + 11.11c = 25.28c |
2023 |
?c |
12.0c + ?c |
16.67c + ?c = ?c |
Notes:
1/ The above 'per share' table is based on the 1,400m MCY shares on issue.
2/ (NI) means 'Not Imputed', (S) means 'Special Dividend' (not used for FY2022.5 data) .
3/ 'Normalised eps' = 0.72x(EBITDAF-DA-I) / 1,400 shares on issue
For this valuation technique, I work with all dividends. Despite special dividends, when declared, not being repeatable, they are paid frequently. And, using this particular valuation method, I have not recognised these special dividends as a benefit for shareholders in any other way.
From the table, the average annual normalised gross dividend payment over FY2019.5 to FY2022,5 inclusive has been:
(8.61c+21.81c+22.50c+25.28c+16.67c)/4 = 23.72c
SNOOPY
Capitalised Dividend Valuation (FY2022.5 view) Part 2: Calculation
Quote:
Originally Posted by
Snoopy
This is an alternative Capitalised Dividend valuation to my post 1443, now using a 5.0% gross yield for utilities, as I have just done in my recent Contact Energy valuation.
So I can calculate a capitalised earnings valuation for MCY as follows.
23.67c / (0.05) = $4.73 (based on averaged, dps)
However, this valuation does not take into account the any not yet operational wind farms for which the capital is already built into today's balance sheet. Adjusting for that (my post 1442) my fair value for MCY today is:
$4.73 x 1.230 = $5.82
MCY closed on the market on Friday 12th August at $6.50. That means I see MCY as overvalued, by 11.7%.
I have decided that using a 5.0% gross yield, as I have just done in my recent Contact Energy valuation, is an appropriate measuring stick for 'fair value' of a relatively secure cashflow utility.
So I can calculate a capitalised earnings valuation for MCY as follows. Average 'earnings per share' for the most recent four years of dividend data may be found in post 1462.
23.72c / (0.05) = $4.74 (based on averaged, dps)
However, this valuation does not take into account the any not yet operational wind farms for which the capital is already built into today's balance sheet. Adjusting for that (my post 1461) my fair value for MCY today is:
$4.74 x 1.268 = $6.01
MCY closed on the market on Thursday 18th August 2022 at $6.30. That means I see MCY as overvalued, by 4.8%.
SNOOPY
Onslow Downside for Mercury Energy: Part 1
Quote:
Originally Posted by
Snoopy
The rationale for Onslow is for it to be government controlled 'reserve generation' that puts a lid on the maximum price offered into the nationwide power system. Without Onslow, this maximum price would be controlled by the gentailers who have made big money from rogue power price peaks. Peaking Thermal generation in particular would not be competitive with Onslow. But if Onslow were used all the time to flatten any wholesale power price spike, then there would be a possibility of the Onslow water supply being used up. That would remove the threat of Onslow coming on stream to reduce high spot power prices, and so defeat the whole rationale for Onslow existing in the first place. This means the 'default state' of Onslow must be to remain idle.
The post below relates to Contact Energy for the June 2022 financial year.
Quote:
Originally Posted by
Snoopy
I refer you back to work I did on another electricity market player where I calculated the upside of Onslow
https://www.sharetrader.co.nz/showth...l=1#post973916
+$15.62m
and offset that against the downside
https://www.sharetrader.co.nz/showth...l=1#post973765
-$208.68m
I know this analysis was somewhat simplistic (ignoring long term power contracts - not struck at the spot price - for example).
But 'long term' these two numbers still give you a feel for 'the drivers of price'. It looks to me like 'losing the upside' will have a greater effect on the viability of a renewable power generation project than 'losing the downside'.
This is a similar exercise that I did for Contact Energy, of the CEN thread in August 2022. To keep it comparable, I am going to initially look at the year FY2022 for Mercury. The purpose of this exercise is not a retrospective on the year FY2022. Instead I aim to answer the question:
"If the climatic conditions of FY2022 occurred in some future year in which Onslow was operating, how much profit (in this case EBITDAF) would Mercury lose as a result of Onslow being operational?"
When looking at Mercury there is an additional complicating factor. That being the generation side of the business has 'substantially changed' with the acquisition of the former Trustpower windfarm portfolio. This should bring positive benefits to Mercury as it will allow them to substitute wind for hydro production, thus leaving the hydro-generation assets more water to generate power when the wind is low and wholesale energy prices are consequently higher. Exactly how this wind energy for hydro substitution pans out in future years is interesting to contemplate. But that is for a separate analysis another time.
SNOOPY