GNE - Genesis Energy

[trader_jackson]

Agree with trader jackson but also worth noting Reserve bank have said they're on track to keep interest rates and current level's for quite some time and I also note that GNE as announced in their most recent quarterly operating report are adopting Fly Buys with effect from this month. So far they said they had received 60,000 expressions of interest in joining because of Fly Buys...quite an interesting bit of anecdotal evidence on the power of that reward scheme. Disc: Recently bought back in a modest stake for strong ongoing dividend yeild.

I think the bold above Roger mentioned has also benefited GNE the most of the gentailers, and was a surprise to the market (that the RB has taken a neutral stance to raising interest rates)

[Beagle]

I think the bold above Roger mentioned has also benefited GNE the most of the gentailers, and was a surprise to the market (that the RB has taken a neutral stance to raising interest rates)

Definitely a factor especially when you drill down into the full detail of the RBNZ's statement outlining that even in mid 2020 they see the OCR at only 2% http://rbnz.govt.nz/-/media/ReserveB...7/mpsmay17.pdf and we're seeing some of the REIT's catch a modest bid on the back of that announcement which also supports that viewpoint but on the other hand you could easily make the case that the market is efficiently pricing in the estimated 5% EPS accretion indicated by Nova's acquisition seeing as it was around $2.15 at the time of the announcement, (2.15 x 1.05 = $2.26).
You could argue that the combined effect of these two things means there's still some value left on the table with GNE at around today's price.

[Snoopy]

Agree with trader jackson but also worth noting Reserve bank have said they're on track to keep interest rates and current level's for quite some time and I also note that GNE as announced in their most recent quarterly operating report are adopting Fly Buys with effect from this month. So far they said they had received 60,000 expressions of interest in joining because of Fly Buys...quite an interesting bit of anecdotal evidence on the power of that reward scheme. Disc: Recently bought back in a modest stake for strong ongoing dividend yield. The acquisition of Nova energy's LPG business makes compelling common sense on the back of increasing their stake in Kupe. Might as well sell those increased Kupe reserves at retail rather than wholesale !

It is going to need to be some magic hat that new CEO Marc England is wearing to maintain dividends and in particular the current level of imputation credits.

The Kupe field depletion I calculated at 5cps over FY2017 (my post 2136). That is 5c worth of share price value gone.

Then there are plenty of non-recurring items from FY2016 to replace come FY2017 result time:

1/ $5.5m profit gain of Emission Unit Trading gains.
2/ $6.9m profit gain on revaluation of Turbine parts.
3/ $15.5m cashflow gain from reducing coal stock pile.
4/ $138m of bottom line net profit generation from asset revaluation (not a cash item but apparently good for generating imputation credits).

Then post FY2017, the Kupe field production starts to drop off.

The only way I can see the dividend being 'sustainable' is via Genesis giving shareholders the capital they already own back in small parcels with an accompanying tax bill. The 'Fisher Funds' approach.

SNOOPY

discl: Former shareholder, now watching from the sidelines for the Genesis Loco to gradually lose steam.

[Beagle]

Plenty of that remaining coal stockpile to chew their way through If it ever stops raining they might use even more than $15m worth in FY18.

[Snoopy]

Plenty of that remaining coal stockpile to chew their way through

Granted, I see that $46.9m worth of fuel (mainly consisting of coal for electricity production) was still on the balance sheet at EOFY2016.

If it ever stops raining they might use even more than $15m worth in FY18.

Yes but that is still $15m worth of value that shareholders already own. No new capital is generated by running down the coal stack. Paying it back as the unimputed part of a dividend is not sustainable longer term, and means that the value of what you have left in Genesis has declined by $15m.

SNOOPY

[tim23]

Well HBL didn't go gangbusters market got most of lift via XRO and FBU. Most yield stocks got a boost mainly i.e property trusts and gentailers.

Everything went gangbusters yesterday ... not just GNE

[bull....]

On fire today. Anyone care to speculate why ?
Dividend yield?

might have been to do with there bond issue.

[Beagle]

http://www.4-traders.com/GENESIS-ENE...57/financials/

Snoopy, all those factors are known to the market but analysts are forecasting increasing earnings and dividends and the RBNZ are saying interest rates are staying very low untill 2020, at least, possibly longer.

[macduffy]

might have been to do with there bond issue.

I thought the same, bull, but found it difficult to see why that should influence the shareprice - unless of course the terms were so much in favour of the company that it indicated a stronger than expected profitability/financial strength.

[Snoopy]

http://www.4-traders.com/GENESIS-ENE...57/financials/

Snoopy, all those factors are known to the market but analysts are forecasting increasing earnings and dividends and the RBNZ are saying interest rates are staying very low untill 2020, at least, possibly longer.

Roger, if you want to know what is really going to happen to Kupe, you need to look at the NZOG annual report for FY2016.

https://www.nzog.com/dmsdocument/209

The relevant information is on page 4.

By 2020, Kupe field production (oil production in particular) will be on the decline from FY2016. These are using the latest assessment of reserves, only upgraded last year. The 4-traders article you reference, which conveniently only goes to 2019, stops just shy of the significant fall in Kupe field production. Yet even as Kupe production falls, 4 traders shows Genesis sales increasing from $2011m (2016) to $2,140m (2019). To achieve that, there is going to have to be higher than market average increse in electricity sales. Factor in a large capital requirement when the Rankine units at Huntly are finally retired (Genesis will have to build a replacement something somewhere) and I see lots of net cash required ahead.

Of course if the oil price gioes sky high, that will help Genesis in the next 3-4 years. But no true investor could automatically assume that this will happen and be credible.

Genesis themselves have never published the production outlook for Kupe. Analysts for the big firms rarely research comanies outof the top 50, like NZOG. So I think the Genesis analysts who complied that 4-traders report, probably haven't seen the NZOG information on Kupe.

The only way Genesis are going to meet those dividend forecasts (rising from 16.4cps in 2016 to 17.8cps in 2019) is if they start giving shareholders an ever increasing amount of their own capital back, complete with a tax bill, and call it an unimputed dividend. But there is a much more capital efficient way for a shareholder to get their own capital back. That is to sell the shares now in 2017. And that is what I have done.

SNOOPY

discl: former holder

PS Not predicting a disater for Genesis going on from here. I just think there are other Gentailers out there that should be better medium term performers.