Mercury Posts a Strong First Half on High Wholesale Prices

Narrow-moat Mercury NZ reported a good first-half fiscal 2021, broadly in line with expectations. EBITDA increased 14% to NZD 294 million from the prior corresponding period as higher wholesale and retail electricity prices offset lower generation volumes and customer numbers. Underlying NPAT increased 28% to NZD 115 million on stronger EBITDA and lower interest costs. We make only minor adjustments to our earnings forecasts and maintain our NZD 4.00 per share fair value estimate. Mercury is significantly overvalued at present, offering a paltry 2.8% yield. We forecast EBITDA grows at an average annual rate of 4.6% in the next five years, aided by the Turitea wind farm development and a recently announced efficiency drive targeting NZD 30 million in savings and revenue benefits.