MCY Mercury NZ ( MRP Mighty River Power)

[Snoopy]

MCY looking to takeover TLT's NZ's assets in partnership with QIC taking the AU assets.

Would be a fantastic buy for MCY if they can get it over the line.

Mercury has got it over the line!

https://www.nzx.com/announcements/369080

"Mercury will acquire all of Tilt’s New Zealand operations, including development options, for an enterprise valuation of approximately NZ$770m."

"The acquisition of the New Zealand operations by Mercury will be funded from the sale of Mercury’s 19.9% Tilt shareholding, worth NZ$585m and net debt of NZ$185m and are forecasted to lift Mercury’s earnings (EBITDAF) in FY2022 by $50m. The acquired Tilt assets will increase Mercury’s total annual generation by over 1,100GWh and include several prospective development options."

Most of the acquisition ends up as being equity funded (76% by my calculation) and as a result we are EBITDAF positive from day one. It is a disaster for Genesis Energy though. Genesis's 'own' new wind farm now falls into the hands of their deadliest competitor.

SNOOPY

[trader_jackson]

not just a disaster for GNE, but a disaster for MCY as well - huge (and huge is an understatement) premium paid for what is really not much.

[Jantar]

.... It is a disaster for Genesis Energy though. Genesis's 'own' new wind farm now falls into the hands of their deadliest competitor.

SNOOPY

Maybe not quite so bad. The wind farm was never owned by GNE, but by TLT. GNE said this 2 weeks ago "... All electricity produced by the project is being purchased by Genesis Energy under a long-term offtake agreement."

I suspect that any new owner of Tilt's assests will be bound by that agreement, unless they purchse their way out of it.

[Norwest]

I can see why they were so coy about it on the last analysts call, I knew they must have been very close to them getting this over the line, congratulations to the MCY team.

I haven't read all 97 pages of the SIA in detail, however from first glance it doesn't state anything about the requirements around pre-existing agreements, it only state's that TLT cannot enter into any further agreements.

When the PPA/DSA was signed for Waipipi its extremely likely that MCY had some input into them and would have factored a potential takeover and/or sale of assets into it. The way the SIA is structured MCY are absolutely in the driving seat over any PPA/DSA's.

This is massive for MCY and further cements them as the best gentailer listed on the NZX.

[Norwest]

not just a disaster for GNE, but a disaster for MCY as well - huge (and huge is an understatement) premium paid for what is really not much.

To put this into perspective.

MCY acquired their initial holding in TLT for $144M in 2018 @ $2.30 per share.
They contributed another $55M in 2019 @ $1.75 per share.
They received $55M from capital distribution in 2020.
Along the way they got a couple of divvies as well.

Ultimately they're only putting up another ~$180M to own outright TLT's current NZ assets AND their development options.

[bullfrog]

As a TLT shareholder since 2018, getting in at around $1.7, I have mixed feelings about the takeover. I'm disappointed that I'm loosing what I hoped was a long-term dividend earner, but happy with the price. Yes, MCY are paying a premium but as Norwest pointed out, they already have a substantial holding at a realistic price.

The company that's impressed me in all this is IFT. Yet again they make a tidy sum by playing their cards right.

[Snoopy]

The new Turitea windfarm is scheduled to be built in two stages. There is the 33 turbine northern section timetables to be completed by the end of Q1 FY2021. The second 27 turbine southern section is set to be completed by the end of Q2 in FY2022. When finished this windfarm will consist of 60 turbines, and is budgeted to cost $465m including capitalised interest (AR2020 p40).

The Turitea wind farm will be New Zealand's wind farm with a total capacity of 222MW. Once operating the average projected energy to be produced each year is projected at 840GWh/year. If the wind farm were to operate 24/7 then the total energy generated would be:

222MW x 24 hr/day x 365 day/year = 1944720 MWh/year = 1945 GWh/year

This would suggest the windfarm will operate at: 840/1945 = 43.2%

We can use the above costings to figure out a present day value for the 'Tilt Renewables' power stations that 'Mercury Energy' are about to acquire.

Indicative construction cost =$465m / 222MW = $2.095m /MWh

Trustpower's Tararua wind farm.

http://www.windenergy.org.nz/tararua-wind-farm

This has a combined capacity of 161MW with average annual generation of 620GWh. The maximum energy that can be generated in any year is:

161MW x 24 hr/day x 365 day/year = 1410360 MWh/year = 1410 GWh/year

This would suggest the Trustpower Tararua windfarm will operate at: 620/1410 = 44.0%

Both of those operating yields seem high for a wind farm. Nevertheless they are in close agreement. That would suggest the wind farm Capacity Factors that I have calculated are correct.

To avoid any ambiguity, the windfarms I referred to above were originally owned by Trustpower. However, they were subsequently shunted across to Tilt Renewables when that company was created. At that point -and now- they were owned by Tilt Renewables. Nevertheless the future output from those windfarms has been sold back to Trustpower for the life of those windfarms (I think that means 20 years). However the earliest Tararua wind turbines have just clicked over 20 years of operation and show no signs of stopping. So I think it is inevitable that these 'lifetime' contacts will leave some value on the table for the Windfarm owner.

The additions to the Mercury wind energy (which doesn't include Mercury's own Turitea windfarm) portfolio, those windfarms to be acquired from Tilt, look like this

	Generation Capacity	Forecast Annual Energy Generation	Forecast Capacity Utilisation	Present day Value
Mahinerangi	36MW	105GWh	33.3%	$75m
Tararua 1&2	68MW	235GWh	37.8%	$142m
Tararua 3	93MW	324GWh	39.8%	$195m
Waipipii	133.3MW	455GWh	39.0%	$279m
Total				$691m

Observant readers will note that the expected Tararua windfarms capacity utilisation is below that of the previous
http://www.windenergy.org.nz/tararua-wind-farm reference. The figures I have used in the above table p15 in the Tilt AR2020. I cannot explain the difference.

Today's press release shows that MCY paid $585m + $185m = $770m for these assets. In construction for value terms this purchase price is no bargain. Mercury overpaid by $79m! However, we have to remember that all of these assets, bar Mahinerangi, are within reasonable proximity to the giant Lake Taupo 'battery'. So these assets may have a strategic value to Mercury that could not be extracted by other buyers.

Furthermore Mercury has purchased the option, not included in my valuation, to build more windfarms at Omarari (70MW, 10km NW of Dannevirke), Mahinerangi 2 (160MW), Kaiwera Downs Stages 1 (40MW, 18kn SE of Gore) and 2 (200MW), and perhaps most presciently, the go ahead to upgrade Tararua to 140MW, a full 72MW above its current power generation capacity.

Overall I think Tilt should be very pleased with the buyout price for those NZ assets. But likewise Mercury has secured some strategic assets today that are immediately EBITDAF accretive. As a Mercury shareholder I am very happy with this NZ Tilt assets purchase.

SNOOPY

[Snoopy]

Based on a 4.5% gross yield that I now used for utilities in this ultra low interest rate environment, I can calculate a capitalised earnings valuations for MCY.

23.11c / (0.045) = $5.14 (based on averaged, dps)

However, this valuation does not take into account the two hidden not yet operational wind farms for which the capital is already built into today's balance sheet. Adjusting for that (my post 1323) my fair value for MCY today is:

$5.14 x 1.234 = $6.34

As I write this MCY is trading at $6.81. That means I see it as overvalued, although not by as much as some might think ( +7.4% ).

Chaiman Prue Flacks reporting to the market today, having topped up at $6.72. Market price today $6.975!

I should point out that 'my'/ valuation was before the confirmed purchase of Tilt Renewables NZ assets. But the valuation method I have used means that this purchase does not increase my MCY valuation.

SNOOPY

[kiora]

"It's also putting pressure on power retailers Nova and Mercury - the first to pass on increases to consumers - with others likely to follow.

"The first thing that should be done, and it should be done right now I think is ask the public to conserve electricity. The Government has decided not to do that, and I think they're wrong," Leyland says.

The aluminium smelter at Tiwai Point is reducing its consumption until the end of May.

But the potential threat of blackouts remains, with the dry patterns forecast to stick around for at least the first half of winter."
https://www.newshub.co.nz/home/money...day+3+May+2021

[winner69]

Saw the heading FY2021 EBITDAF guidance revised to $460 million ....

...first reaction great an upgrade

....but then noticed that they would have included the the word 'increased' or 'upgrade' in the heading

.....so opened up the announcement

....and its a profit downgrade - Mercury announced today that it has revised its FY2021 EBITDAF guidance from $520 million to $460 million.


...that's quite a big downgrade

...won't affect dividend will it?