Extra hydro generation boosts Mercury

MERCURY has upgraded its operating profit guidance to $520 million from $510 million, in line with forecasts, Forsyth Barr broker Damian Foster said yesterday.

The basis for the upgrade was extra hydro generation.

Mercury is now expected to generate 4700GWh from its Waikato River power stations, up 200GWh from earlier guidance and 700GWh (17%) above average.

Forsyth Barr had upgraded Mercury’s 2017 financial year profit forecast by $8 million to $519 million and assumed 4670GWh of generation, he said.

‘‘While Mercury is having a great year, we continue to believe Mercury is the most expensive of the generators/ retailers and retain our underperform rating.’’

Forsyth Barr had a share target price of

$2.97. The shares last traded at $3.20, up 1c.

Mercury had

390,000 electricity customers at the end of March, up from

377,000 a year earlier. Its annualised churn rate of 17.6% was the lowest among the major retailers and below the market average of 20.5%.

Mr Foster said dry South Island conditions were aiding Mercury. Wholesale electricity prices were firming and Mercury would have a strong finish to the year.

Looking at the energy sector as a whole, Mr Foster said divergent operating conditions in the North and South Island continued in May. Hydro operators in the north — Mercury, Genesis Energy and Trustpower — were benefiting from the wet conditions, while their counterparts in the south — Contact Energy and Meridian Energy — received little rain.

Colder weather across the country meant a spike in demand, up nearly 8% on the previous corresponding period and the highest singlemonth growth rate seen, he said.

North Island hydro generation of 847GWh was the highest monthly total since August 2008 and South Island hydro generation was the lowest for two years.

‘‘The largest four generator/ retailers are heading into their financial year ends and are experiencing different finishes to the period as a result of the hydrology conditions.’’

Forsyth Barr had also upgraded its operating profit forecast for Genesis by $5 million but downgraded Meridian by $6 million and Contact by $8 million, he said.

With the exception of Lake Taupo, all key storage lakes were below average and national storage was 76% of average.

Monthly average wholesale electricity prices at both the Benmore and Otahuhu nodes surged during May to $66.20MWh and $64.80MWh respectively, pushing past the pcp for the first time this year.

Benmore had not had higher prices than Otahuhu since April 2015, illustrating the different conditions in the islands, Mr Foster said.

May 2017 was the coolest May since 2012, down 13.8%, or 2.6degC, below the pcp, and followed the warmest May in 2016.

Not surprisingly, a spike in demand coincided with the colder temperatures and demand was up nearly 8% in May, 8.2% excluding New Zealand Aluminium Smelters’ demand.

❛The largest four generator/retailers are heading into their financial year ends and are experiencing different finishes to the period as a result of the hydrology conditions❜

— Damian Foster