Genesis' Fiscal 2015 Result Beats Expectations, Shares Undervalued and Dividend Yield Attracts

In spite of notoriously volatile weather conditions and strong retail competition, Genesis Energy's fiscal 2015 net profit after tax increased 113%, to NZD 105 million. The result exceeded our NZD 77 million estimate, chiefly because of a one-off, NZD 33 million hedging windfall, with additional contributions from lower operating expenses and increased fuel efficiency. Pleasingly, free cash flow grew 22% to NZD 198 million reflecting meaningfully lower maintenance capital expenditure, consistent with the maturing industry and relatively weak growth outlook. We expect free cash flow to strengthen during the five years ending fiscal 2020, as Genesis retires the coal-fired electricity generation capacity by 2018 and shifts towards lower-cost, more efficient renewable energy.