UPDATE: Genesis Energy stock falls on stretch to reach FY earnings target
Genesis Energy shares fell after New Zealand's largest energy retailer said it faced "headwinds" of weaker global oil prices and aggressive competition for customers that would make it a stretch to reach its full-year earnings target.
The shares declined 2.2 percent to $2.21 after Auckland-based Genesis released its first-half results, showing a 15 percent gain in operating earnings to $172.8 million for the six months ended Dec. 31. The company declared a first-half dividend to 8 cents a share and said it would meet full-year guidance for total dividends of 16 cents.
Total generation declined 1.9 percent to 3,280 gigawatt hours in the first half as lower water levels toward the end of the period prompted Genesis to reduce hydro output, while product using gas also fell and coal generation surged. Chief executive Albert Brantley said while there was potential for conditions to become even drier in some regions, capacity shortages that contributed to rising whole power prices were now abating.
The stock price decline is a blip for Genesis, which has been favoured by investors for its dependable and growing dividend stream, driving the price up more than 40 percent from its initial public offering price of $1.55 last April, when the government sold 49 percent of the company. Those dividend payments mean investors regard the stock as having 'bond-like' properties, rather being a 'growth stock'.
"This sector has been very strongly rated on the basis of yield, but they're not immune to operational risk," said Shane Solly, a portfolio manager at Harbour Asset Management. "They are priced like bonds but they're equities. This is a reminder that these businesses are exposed to hydrology, to the weather, to commodity prices."
Brantley said the company's diverse assets mean it doesn't have a large concentration of risk. Its generation is a mix of renewable, thermal and hydro, spread across the North and South islands, while its retail customer base was "scattered" across the country. Added to that was the contribution from its one third stake in the Kupe oil & gas field.
"We look at running the company as a true portfolio of assets," he said. Stability of earnings was a selling point in last year's IPO.
Electricity sales, the company's biggest source of revenue, rose to $869.6 million from $809 million, even as total electricity customers fell 3.2 percent to 517,492 and total sales by gigawatt hours declined 0.9 percent to 2,825. Gas customers declined 6.4 percent to 108,217, although retail gas sales climbed 29 percent to 4 petajoules and total revenue from gas jumped to $155.8 million from $117.7 million.
LPG customers rose about 22 percent to 13,081 and LPG sales in tonnes jumped 21 percent to 1,944. Total customer accounts fell 3.4 percent to 638,790.
Genesis said the average retail electricity purchase price declined 34 percent to $72.45 per megawatt hour.
Total generation in the first half declined 2 percent to 3,280 GWh, which the company said reflected lower hydro generation as water was conserved in the latter part of the half year. Thermal generation rose 2 percent to 1,918 GWh.
"Genesis Energy expects that the current competition for customers in the retail electricity and gas markets will continue through 2015, with elevated switching rates and retailers willing to compete aggressively on price and with bundled products in targeted regions," Brantley said.
"While there was strong competition for energy customers during the half year and this impacted our total customer accounts, our focus on volume sales ensured a strong revenue and Ebitdaf performance," he said.
Genesis Energy's share of oil sales from the 31 percent stake in the Kupe oil and gas field fell 9 percent to 233,352 barrels, while gas output was down 2 percent and LPG sales were flat at 15,184 tonnes.