Genesis: Fossil fuels putting off investors

Genesis Energy chair Barbara Chapman has put the relative underperformance of the company’s share price down to its fossil-fuel use.

The power generator and retailer owns and operates the coal- and gasfired Huntly power station, which is vital for the national grid when hydro lakes are low and when the wind stops blowing.

Genesis also has extensive hydro power capacity in the central North Island and in the South Island, plus a share in the Kupe gas field.

At the company’s annual meeting yesterday, one shareholder asked why its share price had fallen by more than 10 per cent over the past 12 months while Mercury (up 19 per cent), Meridian (12.4 per cent) and Contact Energy (11.9 per cent) had all gained, despite there being no change to Genesis’ assets.

Chapman said: “With our asset mix, which includes thermal and obviously the Kupe field, there are funds and partners who will not invest in Genesis and that impacts on our share price.”

Genesis, which installed Malcolm Johns as chief executive in March, is planning to release details of a major strategic review in November.

“We are very cognisant of how we get our share price into a position that we would want it to be,” Chapman said.

Johns said the company was in the early stages of a transition, “and the investment community is evolving its understanding as to what that transition looks like”.

He noted that both Mercury and Meridian had called for more thermal peaking capacity to be built into the system. “What these two companies are telling us is that New Zealand requires a mix and ultimately we have to look at that transition through a collective lens,” he said.

Looking ahead, Genesis has forecast its earnings before interest, tax, depreciation, amortisation and financial instruments for 2024 to be around $430 million, down from last year, as the country returns to more normal hydrological conditions, and to take into account the impact of the outage of one unit at Huntly.

That unit — Unit 5, which by itself can power up to 400,000 households — is expected to be back up and running by late January 2024.

Johns told shareholders that the Zero Carbon 2050 Act meant that achieving that goal was no longer a point of debate.

“This is exciting because there appears universal agreement that the best way to achieve that outcome is to electrify as much of our lives and economy as we can over the next quarter-century,” he said.

“New Zealand faces the largest asset transition challenge in our history, at both a household and business level.

“New Zealand must proactively move away from assets that operate solely on fossil fuels and towards assets that operate primarily on electricity.

“This means the demand side dynamics will drive the supply side dynamics of the transition,” Johns said.

In August, the 51 per cent government-owned Genesis said exceptional hydro power generating conditions helped take its operating earnings — ebitdaf — to a record $523.5m in the June year, up 19 per cent on the previous year. Genesis declared a final dividend of 8.8c, taking the total annual declared dividend to

17.6c — the same as the previous year. That was despite free cash flow jumping by 27 per cent to $335.2m.

The dividend, as a percentage of free cash flow, fell to 56 per cent from

70 per cent.