Genesis Grows Earnings Strongly in Fiscal 2021, Excluding One-Offs

Narrow-moat Genesis Energy reported a strong underlying result, but reported numbers were marred by unfavourable arbitration forcing Genesis to pay the carbon taxes associated with contracted gas purchases from Beach Energy, as previously flagged. One-off payments comprised NZD 27 million relating to carbon liabilities from prior years and NZD 33 million relating essentially to building up carbon credits to cover future liabilities. Excluding these items, fiscal 2021 EBITDA rose 17% to NZD 418 million on good performances in both the retail and wholesale divisions, 2% ahead of our expectations. Fiscal 2022 guidance is for EBITDA of NZD 420 million to NZD 440 million. We upgrade our 2022 forecast 1% to NZD 428 million. We lift our fair value estimate 4% to NZD 2.50 per share mainly on the time value of money. Nonetheless, the stock screens as expensive. While Genesis offers a healthy forecast dividend yield of 5.2%, it faces long-term headwinds from depletion of the Kupe oil and gas field and closure of its thermal power station fleet.