Good yield also, with another special divvy announced...makes it 8.4c+2.5c = 10.9c for this period.
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Good yield also, with another special divvy announced...makes it 8.4c+2.5c = 10.9c for this period.
Yes special dividend was a bit of a (good) surprise, everything else average at best... but I still think long term MRP is best positioned power company (with the exception of maybe MEL)
The FY2015 results came out on Friday. So time to do the annual statistical overview update.
For ease of comparison I have adjusted the eps figures before listing as though the 1.4b of shares currently on issue had been on issue throughout the entire comparison period. The financial year for MRP ends on 30th June.
'Earnings' used are normalised operational earnings, excluding one off gains/losses and asset revaluations.
FY2011: $161.6m/ 1,400m = 11.5cps
FY2012: $148.1m/ 1,400m = 10.8cps
FY2013: $167.9m/ 1,400m = 12.0cps
FY2014: $186.5m/ 1,400m = 13.3cps
FY2015: $155.5m/ 1,400m = 11.1cps
Conclusion: Fail Test
SNOOPY
Margin = Normalised Net profit / Normalised Revenue
Note: all revenue figures are exclusive of line charges
FY2011: $161.6m/ $1,163.9m = 13.9%
FY2012: $148.1m/ $1,520.6m = 9.7%
FY2013: $167.9m/ $1,382.4m = 12.1%
FY2014: $186.5m/ ($1,705m -$431m)= 14.6%
FY2015: $155.5m/ ($1,678m -$422m)= 12.4%
Conclusion: Fail Test
SNOOPY
Thanks to the 'Thin air' asset value correction applying to the FY2014 result, the FY2014 data does support a Warren Bufffet style growth projection calculation. However, what a difference a year makes.
The increasing earnings trend is no longer discernable. Neither is there any pattern showing an ability to increase margins accross the years. The culprit? FY2015 was the worst on record for water inflows into the Taupo hydro scheme. But just a few years before that there were two more 'worst year since the company was formed' events: The Waikato river system drought of FY2008, and the second driest autumn in 80 years in FY2010. When the abnormal becomes the new norm, this is where many company valuation techniques break down.
SNOOPY
One thing that caught my eye was the increase in the carrying value of assets profit of $504m before tax. In a time of relatively flat demand, this struck me as an extraordinary amount to once again pull out of thin air. It's MRP's biggest asset revaluation profit in eight years.
If you believe the Property plant and equipment sensitivity notes, +$504m is equivalent to revaluing all industry profits up by over 6%. Given that this was a 30th June figure, made before the subsequently announced closure of two large thermal stations (Contact's Otahuhu B and Genesis Energy's Rankine units at Huntly), we MRP shareholders could be in line for another large revaluation bonus next year. That's because the baseload renewable power stations that do remain become consummately more valuable!
SNOOPY
What is the call then Snoopy buy, hold or sell?
Is your concern is an ability to grow earnings above the rate of inflation. Wouldn't the only restraint be rules provided by govt. these should surely include an allowance for inflation. Or are they restrained by competition. I only ask because my own understanding of the company is limited but I like a good yield.
Current dividend (incl special) of 15.139cents (incl imp crs) and assuming they match last March's dividend of 7.778cents I calculate a before tax yield of 9.2% based on a purchase price of $2.50.
I guess I need you to tell me if this is sustainable.
The ability to grow margins above the rate of inflation is one way to measure a company's ability to recover from a bad patch in the market. If they don't have the ability to do this, then there is every chance that competition will result in a race to the bottom. Competitors chop prices to gain market share, others do the same and before long the margin for the whole electricity generating industry is cut to the bone. If you are a consumer you might say "Great". But ultimately these companies have to generate enough profit to allow reinvestment in power generation plants to take place.
Opportunities exist in electricty generation markets beyond just price competition. Shifting the time of day that power is required will allow more profit to be generated from the same infrastructure. Ultimately good for the consumers and good for the gentailers if they play their cards right.
AFAIK, there is no government restraint on the gentailers. It is only the lines companies, the local monopoly, that have government mandated acceptable rates of return. The fact that most companies are not able to increase their margin (by cutting costs or increasing prices) all the time is the reality of a competitive market.
SNOOPY
In general a 'special dividend' is not sustainable. If it were, it would be part of the regular dividend. The last five years is IMO the best yardstick we have of what the potential for regular income might be. This includes good and bad years and is, in my view, a better way of looking at things than trying to guess what weather conditions will be like "next year". The eps record is as follows:
Year eps (normalised) 2011 11.5c 2012 10.8c 2013 12.0c 2014 13.3c 2015 11.1c
I get an average of 11.74cps. Buying on a 6% gross yield that I regard as 'about right' given current interest settings and a low to no growth demand environment gives an implied share price of:
11.74/ (0.06 x 0.72) = $2.72
I note the current trading price is $2.77. So even if the current dividend yield is sustainable, I don't believe the share price is cum an 8.4c final dividend combined with 2.5c special (ex dividend price is an implied $2.66).
SNOOPY