Mercury NZ Limited (NS) Analysis

Overview

Mercury (formerly Mighty River Power - NZX: MRP) is a company with a long heritage in renewable energy in New Zealand serving about 1-in-5 homes and businesses under the Mercury brand and other specialty brands, including the leading pre-pay product GLOBUG. Mercury also has proven capability and technical expertise in smart metering services and solar.

Mercury's electricity generation is 100% renewable, with the hydro and geothermal power stations operated by Mercury producing enough renewable electricity for about 1 million New Zealand homes. The nine hydro stations dating back to the 1920s make up the Waikato River Hydro System, accounting for about 10% of the country's total electricity supply that is predominantly hydro.

Mercury led a renaissance in geothermal energy over the past decade with an innovative investment programme in partnership with local Maori landowners, enabling the completion of three major geothermal projects in 2008 (Kawerau), 2010 (Nga Awa Purua) and 2013 (Ngatamariki). These sustainably harness natural heat deep underground, producing steady 'base-load'electricity - normally running 24/7 and are not dependent on the weather like other forms of renewable generation.

The company has established a leadership position in encouraging the electrification of transport, supporting the adoption of e-bikes and electric vehicles, partnering on charging infrastructure and moving 70% of the company's vehicle fleet to plug-in by 2018.

Mercury was publicly listed on the New Zealand and Australian stock exchanges in May 2013 with a large New Zealand ownership base, alongside the Government as majority owner. The company was renamed Mercury NZ Limited (NZX: MCY) on 29 July 2016.

Performance

The following information was extracted from Mercury NZ Limited's Half Year report, released on 20 February 2024:

“The renewable energy sector is undergoing transformational growth, and we are part of that change. The opportunity ahead of us is material – Aotearoa New Zealand’s total energy consumption is expected to reach nearly 60% renewable by 2050, well up from the 20% we’re currently at,” said Mercury’s Chief Executive Vince Hawksworth.

FINANCIAL OVERVIEW

Mercury’s net profit after tax was $174 million for the half year, down $65 million on the prior comparable period due to higher depreciation, interest charges and net changes in fair value. Mercury reported EBITDAF of $434 million, $17 million down on the prior comparable period, a strong performance given the much higher hydro generation during HY23. Earnings for the period were positively influenced by ongoing investment in renewable generation together with higher prices. Wind generation increased by over 40% to 1,109GWh, with the full contribution of generation from Turitea South and commissioning of Kaiwera Downs 1 wind farms. Operational expenditure of $191 million was up $31 million reflecting increases in employee-related expenses and maintenance expenses mostly from wind contracts. Stay-in-business capital expenditure for the period was $60 million (up $29 million). Growth capital expenditure was $70 million (up $26 million) and largely related to construction costs incurred for the addition of a fifth unit at our Ngā Tamariki geothermal station and completion of the Kaiwera Downs 1 wind farm near Gore. Net debt was $1,983 million, up $76 million primarily due to higher interest and tax paid combined with a lift in capital expenditure on new generation projects and geothermal drilling