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 25 February 2025:

FINANCIAL OVERVIEW

Lake Taupō was above normal levels by the end of the calendar year, despite low hydro inflows, due to a focus on rebuilding storage ahead of winter 2025.

Mercury reported EBITDAF over the period of $418 million ($16 million down on the prior comparable period) largely reflecting lower generation and increased operating expenses, offset by increased sales yields. Net profit after tax was a loss of $67 million for the period ($241 million lower than the prior comparable period), largely due to adverse non-cash movements of non-hedge accounted electricity derivatives.

Operational expenditure tracked up to $207 million ($16 million up on the prior comparable period) reflecting continued investment in generation maintenance.

Meanwhile, stay-in-business capital expenditure for the period was $73 million (up $13 million on the prior comparable period) and growth capital expenditure was $139 million (up $69 million on the prior comparable period). This largely related to construction costs for new generation projects (fifth unit at Ngā Tamariki geothermal station, Kaiwera Downs stage 2 and Kaiwaikawe wind farms).

“Nearly 50% of our first half earnings have been reinvested in new and existing renewable assets,” said Mr St John.