GNE - Genesis Energy

[Snoopy]

The numbers in the table below are derived from my posts 1674 for oil/LPG recovery and my post 1642 for gas recovery. This table refers to the just completed FY2015. I have split Genesis up into the Kupe bit and what is left (the Gentailer bit). Profit for the year is assumed to be $90m NPAT (9cps), the mid point in the profit guidance issued on 29th April 2015.

FY2015	Division Value	Earnings Dividend	Capital Return Dividend
Gentailer	$1.24.6 + $0.034	$0.09-$0.026=$0.064	$0.034+$0.036
Kupe	$0.19 + $0.25	$0.026	0
Total	$1.72	$0.09	$0.07

So what is the above table about? Genesis are on record as forecasting a profit of 9cps,while paying a dividend of 16cps. Where is the money coming from to make up the dividend payment? The table is my way of explaining it.

Net profit from oil and LPG is predicted at 2.6cps. But net cashflow is much greater, with an additional 3.4cps flowing into Genesis's coffers. This money is a pay back for writing off some of the Kupe development costs on Genesis's books. It is real money, but it is not profit. You might think of it as Genesis paying some of their shareholder capital back to shareholders as a dividend. I have called it a 'capital return dividend'.

To make up the total dividend payment a further 'capital return dividend' of 3.6 cps is required. You can think of this as surplus capital on the books not related to Kupe. This way all the number add up. But it is clear the 'real dividend' isn't as large or sustainable as the headline figures make it appear!

Time to follow up my breakdown of dividends for FY2015, based on what I think will happen in FY2016. This time the table is worked 'top to bottom'. I am assuming gentailer earnings do not change between FY2015 and FY2016.

FY2016	Division Value	Earnings Dividend	Capital Return Dividend
Gentailer	$1.28-$0.07=$1.21	$0.064	$0.033
Kupe	$0.17 + $0.26	$0.012	0
Total	$1.64	$0.072	$0.033

Gross 'Gentailer yield' is therefore projected as:

(6.4/0.72)/128= 6.9% gross.

Of course shareholders cannot buy 'Genesis Gentailer' only. They have to buy the whole package which includes the 31% share of Kupe. The Kupe dividend contains an 'earnings part' (1.2cps) and a return of shareholder funds part, being a share of the depleted capital already on the books as a depleting asset (3.3cps). So the 'headline dividend' (the one alluded to in the newspapers) is forecast as:

((6.4+1.2)/0.72 +3.3)/ 164 = 8.4% gross

{This figure is based on an overall Genesis forecast share price of $1.21+0.17+0.26= $1.64.}

Remember though this 8.4% so called yield includes the return of 3.3c of shareholders own capital. The fully imputed yield is significantly lower.

((6.4+1.2)/0.72)/ 164 = 6.4% gross

Good, but not as spectacular as the 'headline' result would have one believe.

If you believe that Genesis should be priced on a 6.0% yield then the share price might rise to:

$1.64 x (6.4/6.0) = $1.75

The price today in the wake of the Tiwai decision is already above that. So IMO no share price growth for GNE can be justified over the next year.

SNOOPY

[Leftfield]

Snoopy your evaluation (and hard work) is greatly appreciated. Disc - sold my small GNE holding earlier this year.

[LAC]

Snoopy your evaluation (and hard work) is greatly appreciated. Disc - sold my small GNE holding earlier this year.

Agreed, all calculation posts by Snoopy is appreciated by me (someone like me learning the skills) find the calculation bits very informative - much appreciated for the time you take to post them

[Snoopy]

Contact are the only company with gas storage, but there is a maximum amount that they can pump into the ground. If their Take or Pay amount is greater, then they would have to burn the excess.

There is some interesting information on Contact's gas storage on p8 of the 28th July 'Contact Taranaki Site Tour Presentation'.

https://www.nzx.com/files/attachments/217426.pdf

In theory Ahuroa can contain enough gas to run the Contact Owned 400MW Stratford combined cycle turbine for one year. That equates to 17PJ of energy. At the 2014 gas wholesale price of $7.44/GJ this represents:

17PJ x 10e06 GJ/PJ x $7.44/GJ = $126.5m, in 2014 terms

(in 2010 when Ahuroa was established as a storage facility the wholesale gas price was $7.91/GJ)

The total cost of set up was $197m (the initial investment). That $197m is made up of assets $111m, Gas Rights $35m and Cushion Gas of $51m. So it looks like the 'cushion gas' filled up about half the reservoir to start with. I am not really sure why that amount of cushion gas was used.

The graph of storage site activity over FY2015 is interesting too. I would have expected monthly injections to fill the reservoir over summer, with the gas being drawn down over winter. In fact gas is being injected in the winter months (May, June, July, August), and is being taken out in the Spring (October , November , December) - More or less the opposite of what I would expect.

SNOOPY

[Beagle]

By my reckoning the announcement yesterday was mildly positive for GNE. I was fretting that the team lead by our esteemed leader Jenny Shipley would cave in under pressure and almost give away 172MW for free but to my surprise they appear to have some backbone after all.

[bull....]

good announcement brought some on Friday for a short term play so happy chappy after yesterday

[Xerof]

Roger, I know you explained in detail why you saw future dividends being not, or only partially imputed, but I was interested to see an FNZ update this morning, clearly showing sufficient tax payable in each of the next few years to provide 100% IC's for the expected dividends (in one case, perhaps a smidgen light, but close enough. They have a small balance on hand anyway, which would make this shortfall up). I guess they will pay the tax bill early too to ensure IC's are available.

they state imputation rates of 100% for every year 15 through 17 in a separate line, so it's a 'purposeful' line of info

All their data was compiled in consultation with the Company, and I don't believe it's something they would mislead anyone with.

Now that you are a holder again, you might like to revisit, with the latest data?

I'm not challenging your initial comment, just interested to know what the true position is, given the two different perspectives

yes, Slippery has displayed some fortitude........

[trader_jackson]

Good news?
https://www.nzx.com/companies/GNE/announcements/268005

[Harvey Specter]

Good news?

For the environment - yes.

Probably explains why they didn't help out with Tewai as their generation will be falling.

Another knife in the back for Solid energy.

Impact for GNE I am unsure but they wouldn't do if they didn't think it would be positive. They still have a few gas turbines there and they will retain the site should they need futher gas turbines - after all Huntly is now on the southern boundary of Auckland isn't it?

[IAK]

For the environment - yes.

Probably explains why they didn't help out with Tewai as their generation will be falling.

Another knife in the back for Solid energy.

Impact for GNE I am unsure but they wouldn't do if they didn't think it would be positive. They still have a few gas turbines there and they will retain the site should they need futher gas turbines - after all Huntly is now on the southern boundary of Auckland isn't it?

More like a knife in the front. This has been on the cards for a while now. Wouldn't want to be in the coal mining business atm that's for sure. It will be interesting to see what happens if we have a decent nationwide drought though.