CEN vs MRP FY2016 'Head to Head' (Value)
Quote:
Originally Posted by
Snoopy
FY2015 |
Contact Energy |
Mighty River Power |
No. Shares |
733.4m |
1,400m |
Share Price |
$5.13 |
$2.61 |
Normalised eps |
23.6c |
11.1c |
Normalised PE |
21.7 |
23.5 |
Normalised NPAT Margin |
7.1% |
9.3% |
ROE (Assets at Cost) |
10.5% |
117% |
Bank Debt |
$1,750m |
$1,177m |
Min. Debt Repayment Time |
10.1 years |
7.6 years |
Snoopy's Fair Share Price Valuation |
$5.87 |
$2.99 |
Market Discount to Fair Value |
-13% |
-13% |
Notes:
1/ ROE for MRP of 117% not a misprint.
2/ CEN valuation does not contain an allowance for 'thin air capital', while MRP does. But now that CEN has closed down their baseload Otahuhu B station, the power stations that are left may start to develop 'thin air capital' as MRPs power stations do now. Nevertheless up until now it has been Contact policy not to create 'thin air capital'.
3/ Share prices taken from the middle of the afternoon in the market today. MRP share price reduced by 11c to allow for upcoming final dividend. (CEN is already ex the final dividend).
4/ Contact balance sheet is ex the payment of the 50c special dividend on June 23rd, but prior to payment of the 15c final dividend. This is why Contact is more indebted, as reflected in the 'minimum debt repayment time' ( Total bank debt/NPAT ).
With all that , in relative terms, each investment at this afternoon's price is equally as good as each other. It is possible to buy both at a 13% discount to Snoopy's fair value. In one way I am annoyed because I was hoping to figure out which was the better one to buy. In another way I am relieved because it shows that perhaps my valuation method is not too far out of whack with the view of Mr Market. IOW Mr Market is doing his job valuing these two shares appropriately!
I have got behind in my 'head to head' comparison of the two gentailers I now hold. Time for a catch up.
FY2016 |
Contact Energy |
Mercury Energy |
No. Shares |
715.5m |
1,400m |
Share Price |
$4.95 |
$2.96 |
Normalised eps |
22.2c |
10.3c |
Normalised PE |
21.4 |
28.7 |
Normalised NPAT Margin |
7.4% |
9.3% |
ROE (Assets at Cost) |
21.0% |
70.2% |
Bank Debt |
$1,696m |
$1,177m |
Min. Debt Repayment Time |
10.6 years |
8.1 years |
Snoopy's Fair Share Price Valuation |
$5.74 |
$2.83 |
Market Premium or Discount to Fair Value |
-14% |
+4.6% |
Notes:
1/ ROE for MCY of 70.2% not a misprint.
2/ CEN valuation does not contain an allowance for 'thin air capital', while MCY does. But now that CEN has closed down their baseload Otahuhu B station, the power stations that are left may start to develop 'thin air capital' as MRPs power stations do now. Nevertheless up until now it has been Contact policy not to create 'thin air capital'.
3/ Share prices taken from the market close on 30-09-2016.
The snapshot view shows a clear 'investor value advantage' for Contact Energy. This is possibly a downstream effect of the discounted share placement from the Origin Energy sell down still affecting the market. This sale occurred early in the financial year (announced 4th August 2015). So by 30-09-2016, investors have had several months to accumulate CEN shares at a discount to its closest peer. Note that the indicators of 'Net Profit margin' and 'MDRT' favour Mercury Energy though. You could argue that on these fundamental metrics, Mercury is the stronger company and that investors will happily pay more to acquire a piece of Mercury on that basis.
SNOOPY
Business Cycle Earnings Yield (FY2016 perspective)
Quote:
Originally Posted by
Snoopy
FY2016 |
Contact Energy |
Mercury Energy |
No. Shares |
715.5m |
1,400m |
Normalised eps |
22.2c |
10.3c |
My normalised 'eps' figure for Contact Energy is a whole of business cycle figure. I have deemed FY2009 as the start of the representative electricity market from here on in.
Financial Year |
CEN Normalised eps |
MCY Normalised eps |
2009 |
27.0cps |
|
2010 |
25.3cps |
|
2011 |
22.4cps |
11.5cps |
2012 |
24.6cps |
10.8cps |
2013 |
27.5cps |
10.5cps |
2014 |
27.1cps |
13.3cps |
2015 |
22.0cps |
10.1cps |
2016 |
22.2cps |
10.3cps |
Multi Year Average |
24.8cps |
11.1cps |
CEN Business Cycle share Price Average Value:
= 24.8c / ( 0.72 x 0.06) = $5.74 (based on a 6% gross desired earnings yield before tax). This is the 'fair value' as published in the adjacent table.
MCY Business Cycle share Price Average Value:
= 11.1c / ( 0.72 x 0.06) = $2.57 (based on a 6% gross desired earnings yield before tax). This is the 'fair value' as published in the adjacent table.
$2.57 x 1.1 = $2.83 (see post 887 MCY thread "FY2016 Gross earnings yield valuation (Part 2)")
SNOOPY
CEN vs MRP FY2017 'Head to Head' (Value)
Quote:
Originally Posted by
Snoopy
FY2016 |
Contact Energy |
Mercury Energy |
No. Shares |
715.5m |
1,400m |
Share Price |
$4.95 |
$2.96 |
Normalised eps |
22.2c |
10.3c |
Normalised PE |
21.4 |
28.7 |
Normalised NPAT Margin |
7.4% |
9.3% |
ROE (Assets at Cost) |
21.0% |
70.2% |
Bank Debt |
$1,696m |
$1,177m |
Min. Debt Repayment Time |
10.6 years |
8.1 years |
Snoopy's Fair Share Price Valuation |
$5.74 |
$2.83 |
Market Premium or Discount to Fair Value |
-14% |
+4.6% |
Notes:
1/ ROE for MCY of 70.2% not a misprint.
2/ CEN valuation does not contain an allowance for 'thin air capital', while MCY does. But now that CEN has closed down their baseload Otahuhu B station, the power stations that are left may start to develop 'thin air capital' as MRPs power stations do now. Nevertheless up until now it has been Contact policy not to create 'thin air capital'.
3/ Share prices taken from 30-09-2016.
The snapshot view shows a clear 'investor value advantage' for Contact Energy. This is possibly a downstream effect of the discounted share placement from the Origin Energy sell down still affecting the market. This sale occurred early in the financial year (announced 4th August 2015). So by 30-09-2016, investors have had several months to accumulate CEN shares at a discount to its closest peer. Note that the indicators of 'Net Profit margin' and 'MDRT' favour Mercury Energy though. You could argue that on these fundamental metrics, Mercury is the stronger company and that investors will happily pay more to acquire a piece of Mercury on that basis.
FY2017 |
Contact Energy |
Mercury Energy |
No. Shares |
715.5m |
1,400m |
Share Price |
$5.50 |
$3.39 |
Normalised eps |
18.7c |
12.0c |
Normalised PE |
29.4 |
28.3 |
Normalised NPAT Margin |
6.4% |
10.6% |
ROE (Assets at Cost) |
18.9% |
55.6% |
Bank Debt |
$1,527m |
$1,107m |
Min. Debt Repayment Time |
11.4 years |
6.6 years |
Snoopy's Fair Share Price Valuation |
$5.58 |
$2.85 |
Market Premium or Discount to Fair Value |
-5.2% |
+19.0% |
Notes:
1/ ROE for MCY of 55.6% not a misprint.
2/ CEN valuation does not contain an allowance for 'thin air capital', while MCY does. But now that CEN has closed down their baseload Otahuhu B station, the power stations that are left may start to develop 'thin air capital' as MRPs power stations do now. Nevertheless up until now it has been Contact policy not to create 'thin air capital'.
3/ Share prices taken from the market close on 30-09-2017.
The snapshot view shows a clear 'investor value advantage' for Contact Energy, although the PE ratio gap has now closed substantially. Could this still be a downstream effect of the discounted share placement from the Origin Energy sell down still affecting the market? This sale occurred early in the previous financial year (announced 4th August 2015) yet it still could be casting a very long shadow. More likely is the relatively poor operational result for Contact over FY2017. Note that the indicators of 'Net Profit margin' and 'MDRT' still favour Mercury Energy though. Yet despite being relatively weaker, Contact is still in a strong position given the relative security of cashflows in the energy markets in which it operates.
As I write this both shares are trading below their September 30th valuations ( CEN is $5.35 and MCY is $3.22. ) This means the the variations from my fair value are a 4.1% discount (CEN) and a 13.0% premium (Mercury). The Mercury premium is not sufficient to make me sell up though. I rather like the fact that of late when Mercury has had a good year it has not been so good and Contact and vica versa. Holding both seems to have given me a natural hedge against fluctuating values in the electricity market.
SNOOPY
Business Cycle Earnings Yield (FY2017 perspective)
My normalised 'eps' figure for Contact Energy is a whole of business cycle figure. I have deemed FY2009 as the start of the representative electricity market from here on in.
Financial Year |
CEN Normalised eps |
MCY Normalised eps |
2009 |
27.0cps |
|
2010 |
25.3cps |
|
2011 |
22.4cps |
11.5cps |
2012 |
24.6cps |
10.8cps |
2013 |
27.5cps |
10.5cps |
2014 |
27.1cps |
13.3cps |
2015 |
22.0cps |
10.1cps |
2016 |
22.2cps |
10.3cps |
2017 |
18.7cps |
12.0cps |
Multi Year Average |
24.1cps |
11.2cps |
CEN Business Cycle share Price Average Value:
= 24.1c / ( 0.72 x 0.06) = $5.58 (based on a 6% gross desired earnings yield before tax). This is the 'fair value' as published in the adjacent table.
MCY Business Cycle share Price Average Value:
= 11.2c / ( 0.72 x 0.06) = $2.59 (based on a 6% gross desired earnings yield before tax). This is the 'fair value' as published in the adjacent table.
$2.59 x 1.1 = $2.85 (see post 887 MCY thread "FY2016 Gross earnings yield valuation (Part 2)")