Jersey Electricity — Decarbonisation fuelling growth

Jersey Electricity (LSE: JEL)

Last close As at 22/05/2024

GBP4.57

4.00 (0.88%)

Market capitalisation

GBP53m

More on this equity

Research: Industrials

Jersey Electricity — Decarbonisation fuelling growth

Jersey Electricity (JEL) is intensifying its focus on energy security and electrification across Jersey by creating opportunities to accelerate growth. It successfully navigated the volatile wholesale power price environment in 2020–23, shielding its customer base from the worst inflationary pressures. However, from 2025, as older, more favourable hedges expire, this protection will diminish. Therefore, we have marginally reduced our earnings forecasts to account for the increased exposure to wholesale prices. Nonetheless, JEL remains well-positioned for continued growth, driven by decarbonisation and electrification over the long term.

Written by

Andrew Keen

MD - Head of Content, Energy & Resources, Industrials

Industrials

Jersey Electricity

Decarbonisation fuelling growth

Company outlook

Utilities

18 April 2024

Price

440p

Market cap

£135m

Net cash (£m) at 30 September 2023, after deducting long-term lease liabilities of £3.3m

14.2

Shares in issue

30.6m

Free float

38%

Code

JEL

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

0.2

(1.1)

(10.3)

Rel (local)

(1.0)

(5.8)

(10.1)

52-week high/low

483.00p

405.00p

Business description

Jersey Electricity is a vertically integrated power utility dealing in the importation, generation, transmission and distribution of electricity to Jersey. It also operates businesses in retail, property and business services on the island.

Next event

H1 results

20 May 2024

Analysts

Andrew Keen

+44 (0)20 3077 5700

Harry Kilby

+44 (0)20 3077 5724

Jersey Electricity is a research client of Edison Investment Research Limited

Jersey Electricity (JEL) is intensifying its focus on energy security and electrification across Jersey by creating opportunities to accelerate growth. It successfully navigated the volatile wholesale power price environment in 2020–23, shielding its customer base from the worst inflationary pressures. However, from 2025, as older, more favourable hedges expire, this protection will diminish. Therefore, we have marginally reduced our earnings forecasts to account for the increased exposure to wholesale prices. Nonetheless, JEL remains well-positioned for continued growth, driven by decarbonisation and electrification over the long term.

Year end

Revenue (£m)

EBIT*
(£m)

EPS**
(p)

DPS
(p)

P/E
(x)

Yield
(%)

09/22

117.4

10.9

23.8

18.4

19.5

3.5

09/23

***128.7

15.7

40.8

19.4

11.7

4.5

09/24e

139.5

12.8

29.0

20.5

15.2

4.7

09/25e

148.2

13.4

30.7

21.7

14.3

4.9

Note: *EBIT is normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **EPS is reported. ***Includes rebate of £3.6m.

Drivers of energy security

One of JEL’s key priorities is to support Jersey’s energy sovereignty. The company aims to contribute to this goal by continuing to develop on-island solar photovoltaic (PV) generation capabilities and expanding its research into offshore wind power generation post-2032. The increased use of utility-scale and commercial solar PV is supported by JEL’s customers, shareholders and government initiatives such as the Carbon Neutral Roadmap and Bridging Island Plan. By driving the adoption of renewable energy, JEL can help strengthen Jersey’s energy independence and align itself with the island’s decarbonisation targets, while benefiting from additional growth.

Energy resilience powers profits for FY23

Profit before tax (PBT) for FY23 was up 44% y-o-y (£14.9m compared to £10.6m in FY22) with the largest contributor being the energy segment; the figure does, however, include the £3.6m rebate received from RTE at the beginning of 2023. Excluding the rebate, the energy business’s profit (£9.3m) was up 24% y-o-y, with net profits up by 12%.

Valuation: Earnings revised on long-run prices

Since our last report, we have trimmed our earnings forecasts for FY24 by approximately 12% to better reflect the increased volatility and higher long-term wholesale power prices that JEL faces as its older price hedges begin to expire. We have made some adjustments to longer-term earnings to reflect forward power markets, although these remain volatile. These changes reduced our discounted cash flow (DCF) and sum-of-the-parts (SOTP) valuation slightly from 722p to 683p, although this is still well above JEL’s current share price of 440p. The company also offers an attractive 4.7% dividend yield and maintains a strong net cash balance sheet. At an FY24e P/E of 15.2x, JEL’s relative valuation remains modest versus its peers at 15.3x.

Investment summary

JEL is the sole supplier of electricity to the island of Jersey. The energy business was responsible for generating around 75% of group revenues and operating profits in FY23. The key driver for earnings is the spread between the price of wholesale power, which JEL buys from France under long-term contracts with a mix of fixed and capped pricing, and its consumer tariffs. JEL has a selfregulated rate of return on its applicable energy assets of 6–7%. Therefore, consumers are ultimately exposed to changes in French wholesale electricity prices. The company balances the rate of change to consumer tariffs as older more favourable hedges roll off. JEL is fully hedged for FY24 and is one-third hedged for FY25–27.

JEL operates a range of other businesses including property rental, retail and business services. The Government of Jersey (GoJ) remains the largest shareholder, with 62% of the ordinary share capital and 86.4% of the voting rights. JEL is intensifying its focus on energy security and electrification across Jersey, both of which will generate opportunities to accelerate growth.

Generating growth

JEL’s growth will come from the increase in electricity demand throughout Jersey. Some key factors that will drive this demand growth are the continued expansion of new renewable energy projects, greater electric vehicle (EV) adoption and the wider adoption of electric heating tariff switches. JEL has increased its solar PV capacity during 2023, including a 612kWp rooftop array commissioned in 2023. The company received support for the additional use and development of ground-based solar farms, with the aim of increasing on-island solar PV generation to around 20MWp by the end of 2026. JEL is facilitating EV adoption through its EasyCharge home subscription service, launched in 2022, and by upgrading over 100 public charging points in 2023. Furthermore, JEL is supporting government incentives for low-carbon heating and EVs, which encourages customers to switch to electricity. As JEL continues to expand its efforts regarding renewable energy generation and electrification of the island, while supporting government schemes incentivising switching to electricity, JEL is in a strong position to capture the upside and growth opportunity that will follow.

JEL has a highly resilient, low-carbon grid with spare capacity at all voltages. The growth in electricity usage to meet the island’s net-zero emissions target by 2050 is forecast to increase peak demand by 25% and will require a total investment of £125–150m over the next 10–15 years. To manage this increase in demand, JEL has introduced a cyclic design rating (the maximum current of a cable when the load is varied in a sequence of steps, which is repeated cyclically). This allows circuits to carry between 30–50% more power by using time-varying loading, allowing for higher peak load current than steady-state values, therefore reducing the future need for excessive reinforcement to its cable systems.

Navigating the new wholesale price environment

French wholesale electricity prices eased significantly throughout 2023, relative to the peaks seen in 2022 (as can be seen in Exhibit 6), with the three-year forward curve ranging between €90/MWh and 110/MWh from €50–320/MWh. While the long-term equilibrium price remains highly uncertain, forward prices have trended even lower to €60–70/MWh throughout the start to 2024, although these markets remain quite volatile. These current forward curves remain above JEL’s existing hedged import costs secured in previous years at lower price levels. Therefore, the company must carefully navigate this new price environment to maintain returns within its 6–7% target range, while protecting its customer base as much as possible. Naturally we expect some potential upward pressure on retail prices over the coming years as older hedges expire and new hedges roll in, but the easing of wholesale market volatility is an encouraging sign for JEL and its ability to manage price exposure going forward. Our retail price and imported energy cost models now reflect the bottom of the regulated return on energy assets range of 6–7%. We estimate JEL will need to implement tariff increases of around 5% (in real terms from 2023 averages) in FY25 to maintain the five-year rolling return on capital within the targeted 6–7% range.

Risks and sensitivities

Regulation: JEL is a majority government-owned self-regulated utility. While we assume that returns on its energy assets will move back to nearer the lower end of its 6–7% target range on a five-year rolling basis in the next few years, it is possible that returns are held lower due to general political pressure.

Interconnector failure: JEL imports c 95% of its required electricity from Europe through undersea cables, therefore failure of one or more of these interconnectors would require a higher dependence on the use of JEL’s on-island generation.

French wholesale pricing/foreign exchange rates: higher French wholesale prices and a weaker sterling versus the euro increases the cost of electricity purchases for JEL. Although JEL can recoup additional costs from customers through tariff raises, this could invite additional political scrutiny. JEL’s tariff prices, however, remain below the EU-15 average.

Financials

We remain of the view that growth of end-use demand for electricity due to decarbonisation will continue to be a key driver for JEL. Our revenue forecasts remain similar to our previous estimates and are still driven more by the passing through of tariff price than unit volume growth. As such, we have trimmed our earnings estimates for FY24 by 12% and EPS by c 14% to better reflect the increased volatility and higher long-term wholesale power prices that JEL faces as its older price hedges begin to expire. We have also introduced estimates for FY25. We see JEL being well funded with a net cash position across our forecast period (£14.2m at end FY23 and £10.9m for FY24 after deducting long-term lease liabilities of £3.3m).

Exhibit 1: Changes to forecasts

Revenue (£m)

EBIT* (£m)

EPS* (p)

DPS (p)

Old

New

% change

Old

New

% change

Old

New

% change

Old

New

% change

FY23**

128.7

15.7

36.8

19.4

FY24e

138.9

139.5

0.44

14.3

12.8

-12.0

32.9

29.0

-13.7

20.6

20.5

-0.30

FY25***

148.2

13.4

30.7

21.7

Source: Jersey Electricity, Edison Investment Research. Note: *EBIT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **For FY23, ‘new’ is reported actual results for FY23. ***For FY25, ‘new’ is first introduction of estimates.

Robust energy revenue growth in FY23

JEL recorded a group revenue of £125.1m for FY23 (ending 30 September, excluding the £3.6m rebate JEL received), which was an increase of £7.7m from FY22 and a year-on-year increase of 6.5%. This growth was mainly due to the rise in revenues from its energy due to the 5% tariff price increase. This was implemented at the beginning of 2023, despite unit sales of electricity falling by 0.8% y-o-y to 608m kWh, from 613m kWh in FY22. PBT for the year was £14.9m (FY22: £10.6m). The increase in profit was attributable to £1.3m from operations, £1.6m from income and £3.6m from the rebate in the prior year regarding wholesale energy costs. JEL’s property portfolio was also devalued by £1.2m. EBT, excluding the impacts of the rebate and property valuation, stood at £12.5m (£9.6m in FY22), which was up by 30% y-o-y.

JEL’s normalised earnings per share (EPS) of 36.81p was significantly higher than the 27.17p reported for FY22, due to increased profitability in the energy business.

Dividend per share (DPS), net of tax, for 2023 rose by 6% y-o-y from 17.8p in 2022 to 18.8p. The final proposed dividend, recommended by the board, for 2023 was 11.4p, which was also a 6% increase compared to the previous year, payable on 15 March 2024. The dividend cover rose from 1.5x in FY22 to 2x in FY23.

Net cash flows from operating activities for FY23 were £17.6m, £3.6m lower than 2022. Cash used for investing was 3% higher than the previous financial year at £11.4m. This, therefore, meant that net cash at the year-end was £17.4m, consisting of £30m of long-term debt offset by £47.4m of cash and cash equivalents.

Regulated returns and policy

JEL operates on a self-regulated basis with two self-imposed regulatory targets:

A return of 67% (pre-tax and interest) on its energy business (operating fixed assets net of customer contributions) on a rolling five-year basis.

Ensuring its tariffs remain within ±10% of the EU-15 average (inclusive of all taxes).

JEL is able to manage its returns through consumer tariff changes. It imports c 95% of its electricity from France through Électricité de France (EDF), so a sustained upward movement in French wholesale prices and/or a deterioration in the foreign exchange rate would require JEL to raise tariffs to preserve its rate of return. Naturally, managing the rate of change, the relative price of electricity for consumers and foreign exchange rates (it buys electricity in euros) are all considerations that make returns less straightforward. JEL’s 15-year agreement with EDF runs until the end of FY27.

In terms of regulated returns, JEL’s return on energy assets in FY23 was 7.2%, which was a significant increase from 4.2% in FY22, although this includes a one-off rebate from EDF relating to past energy costs (Exhibit 2). On a five-year rolling basis, regulated returns were 6.2% and have tended to remain within the 6–7% regulated target range, except for 2015 and 2016 when they were 5.8% and 5.5%, respectively, which can be seen in Exhibit 2. We expect regulated returns on energy assets to move back towards the 6% mark over the next few years, due to rising wholesale power price costs and as JEL’s older attractive fixed price hedges will roll out in 2025.

Exhibit 2: JEL energy business – operating profit (left-hand side) and estimated return on assets

Source: Edison Investment Research, JEL

Operating profit from JEL’s energy business for FY23, excluding the rebate of past energy costs, was £9.3m (£12.9m including rebate). This was £1.8m above the £7.5m achieved in FY22. This was primarily due to a £7.4m increase in revenues following JEL’s tariff price raise, which began on 1 January 2023. This growth, however, was partially offset by a £5.6m increase in wholesale energy costs and operating costs. Operating costs grew due to higher inflation and greater investment in JEL’s systems and workforce as the company entered a period of expanded capital investments. These investments will support the enhancements needed to achieve JEL’s net-zero emissions goal and align with the GoJ’s Carbon Neutral Roadmap objective of a net-zero Jersey by 2050.

Renewable energy generation

JEL’s key focuses for the future include energy sovereignty as well as security of imported power supply. The company will look to achieve these by continuing to expand its on-island solar PV generation capability and, in 2023, JEL expanded its research into offshore wind generation, having appointed Cambridge Economic Policy Associates as consultants to help define the role that JEL should take if such a project were to come to fruition.

Solar PV

The use of local renewable energy to increase energy sovereignty and solar PV at utility and commercial scale is supported by the Carbon Neutral Roadmap, the Bridging Island Plan, as well as JEL’s customers and shareholders. JEL’s 612kWp rooftop array on the Albert Bartlett potato processing plants has been commissioned and is JEL’s fifth commercial-scale array, as well as the largest in the Channel Islands. The company has received support for the use of ground-based solar with a 4.9MW array in St Clement gaining formal planning consent in 2023 and due to be built in 2024, subject to tender pricing. Its 3MWp array, scheduled for Sorel on the north coast, is in the planning stage, subject to public and statutory comments.

Two further sites have been identified in St Mary (5MWp and 2.9MWp); agreements are currently being finalised and planning studies are being conducted. Two other sites in St Lawrence (c 5MWp) are also being evaluated, which will be presented to the public for comments once contracts have been secured as JEL looks to increase on-island solar PV generation to around 20MWp by the end of 2026.

Offshore wind

JEL’s initial scoping for offshore wind development concepts focused on:

physical infrastructure design;

commercial arrangements;

the allocation of seabed rights;

financial and legal structuring; and

the programme for delivery.

The five areas above were considered in the context of three main potential options:

A small-scale wind farm with a single connection to Jersey.

A more than 500MW wind farm with a direct connection to Jersey and France.

A more than 1GW wind farm with a direct connection to Jersey, France and Great Britain.

JEL has engaged with the government’s Future Energy group (a subcommittee of the Council of Ministers) and RTE (Réseau de Transport d’Électricité) to seek initial feedback from the French distributors regarding the options above. Next steps for JEL include defining the role(s) that the company could perform in any such offshore wind project and agreeing how JEL and the GoJ could work together to successfully deliver such a project post-2032.

Sustainability and the pathway to net-zero emissions

JEL’s strategy of importing low-carbon nuclear and hydro power from France has enabled it to reduce emissions from the supply of electricity in Jersey by over 90% since 1990. Sustainability, as well as Jersey’s transition to net-zero emissions, is deeply engrained in JEL’s corporate values. The company continues to develop the digitisation of its systems, leveraging smart meter data to better understand its operating network. This will enable JEL to target its infrastructure investments more efficiently so it can support the peak demand increase that a netzero environment would bring. JEL understands that sustainability involves more than just reducing the island’s carbon emissions, protecting its wildlife habitats and increasing the biodiversity of Jersey is paramount.

To better understand its own footprint, JEL has begun the process of baselining its current position, which involves working with suppliers and stakeholders to measure the carbon cost of completing works. One of the main ways JEL is cutting carbon is turning its vehicle fleet fully electric. Half of the fleet has already switched, and the remaining vehicles are set to be replaced by the end of 2025. During 2023, through its corporate technology physical environment restructuring, JEL reduced its carbon footprint by 93%.

Delivering on net-zero targets

Jersey has a highly resilient, low-carbon grid, with spare capacity at all voltages. However, the growth in electricity usage to meet the island’s net-zero 2050 target is forecast to increase peak demand by 25% and will require a total investment of £125–150m over the next 10–15 years. A key area that JEL is working on is optimising its capability so customers can move from fossil fuels to electrification as easily as possible. Following a review of its loadings against the UK network cable loading best practice, JEL has introduced a cyclic design rating (the maximum current of a cable when the load is varied in a sequence of steps, which is repeated cyclically), which allows circuits to carry 30–50% more power by using time-varying loading. This allows for higher peak load current than steady-state values, therefore reducing the future need for excessive reinforcement of JEL’s cable systems.

Support for government

Throughout 2023, JEL supported the GoJ in facilitating and providing administrative services for two low-carbon schemes:

The low-carbon heating incentive (LCHI) scheme, launched in May 2023, set a target of 1,000 grants to be delivered by 2025. The scheme, however, temporarily affected the rate of domestic fuel switches from 325 in 2022 to 235 in 2023, as customers await approval of grant applications.

The EV purchase incentive (EVPI), launched in September 2023, supports 1,200 EV purchases and 1,000 home charger installation applications.

Exhibit 3: Domestic fuel switches

Source: Edison Investment Research, JEL

Electric transport

The transition to electric transport and the wider adoption of EVs across Jersey remains a key element of JEL’s transition to net-zero emissions and is split into home and public charging.

Home charging

In addition to supporting the GoJ’s EVPI, JEL’s all-inclusive home EV charging subscription service EasyCharge (launched in May 2022) had 150 installations within its first year. The service benefits JEL’s customers as they gain access to convenient charging, and it allows the company to move load from peak times to overnight off-peak periods when there is spare capacity and energy costs are lower.

Public charging

In 2023 JEL invested in a complex project to upgrade 109 charging points in its Evolve public charging network. The upgrades will future-proof the network, improve the charging experience for customers and support the growing demand for low-carbon electric transportation. The upgrade involved migrating to a new technology platform, including an improved payment system that can be accessed through JEL’s mobile app. Run in partnership with Virta, the new platform is compatible with tens of thousands of public charging points off the island of Jersey, including in the UK and Europe.

JEL is currently in the process of securing sites for two further dual 150kW ultra-raid chargers in the east and west of the island to add to its existing one at the Powerhouse headquarters, enabling faster charging for newer cars with larger batteries.

Looking forward

JEL will look to expand its home charging capabilities into 2024, enabling multi-residential dwellings with communal, designated parking spaces to access its EV subscription-based charging services, as well as migrating the EasyCharge proposition on to the new Evolve platform. The company will also develop the first high-speed EV charging hub for Jersey, with a roadmap for deploying more charging hubs across Jersey in the coming years.

Exhibit 4: Total number of EVs registered in Jersey at 30 September 2023

Source: Edison Investment Research, JEL

Electricity tariff prices and future assumptions

JEL aims to deliver secure, low-carbon electricity supply, while maintaining relatively stable and competitive tariffs both now and in the future. JEL’s electricity requirements are well hedged for 2024 and roughly one-third is hedged at largely fixed prices between 2025 and 2027. JEL’s risk management policies covering power procurement and foreign exchange, combined with priceprotection measures negotiated with its supply contract with EDF, have enabled it to secure strong long-term hedges. These hedges have somewhat protected JEL’s customers from rising prices in the electricity market, while providing some certainty to a relatively unstable and volatile market in recent years.

Despite JEL’s strong hedges, which have sheltered its customers from the most extreme period of material rises in electricity prices, management stated that it is not immune to rises in forward power prices. The prices which JEL will use to secure its hedge positions for 2024/2025 remain significantly above historical norms. Therefore, to enable a smooth transition to the environment where historical prices hedges are rolling off and new price hedges are rolling in, in January 2023 JEL implemented a 5% tariff increase and since then has also applied a further 12% tariff rise effective from 1 January 2024.

Despite the tariff increases seen over the past year, JEL’s standard domestic tariff remains extremely competitive in comparison to other jurisdictions, especially compared to the UK’s standard variable tariff (between 1 January and 31 March 2024), which is more than 60% higher than JEL’s standard tariff (see Exhibit 5).

Exhibit 5 shows EU-15 retail electricity prices for H123 using the latest available data from Eurostat (updated 18 October 2023). We use JEL’s currently advertised standard tariff domestic price of 20.15p/kWh (or 23.37c/kWh), which is 20% below the EU-15 average price for H123.

Exhibit 5: JEL’s standard domestic tariff (inclusive of taxes) versus EU-15 (c/kWh) for H123

Source: Edison Investment Research, Eurostat, JEL. *Note: Based on latest available Eurostat data updated 18 October 2023. United Kingdom based on H123 data from GlobalPetrolPrices.

Current wholesale prices in France have lowered significantly since the peak of 2022 (as can be seen in Exhibit 6) but remain higher than JEL’s current import costs. These extra costs will inevitably be passed on to its customer base post-2027 once its current hedges drop off. Although long-term pricing is inherently uncertain, based on the current forward markets and our long-term wholesale electricity price assumptions, we expect JEL may have to implement additional tariff rises of 3% (in real terms) in future years, which is lower than recent increases and should maintain competitive domestic tariff rates. Naturally, the evolution of forward price curves may change these assumptions.

Wholesale electricity and supply security

JEL imports c 95% of Jersey’s electricity requirements from Europe. It purchases power alongside Guernsey Electricity from EDF in France under a supply contract that ends in December 2027. The supply contract allows power prices to be fixed in euros. It combines a fixed-price component with the ability to price fix future purchases over a rolling three-year period based on a market-related mechanism linked to the EEX European Futures Exchange. JEL’s electricity purchases are well hedged for 2024 and around one-third of its expected 2025–27 requirements are hedged at largely fixed prices.

French wholesale electricity prices eased in 2023 relative to the peaks seen in 2022, as shown in Exhibit 6. The three-year forward price ranged from €50/MWh to €320/MWh during 2022 but only €90/MWh to €110/MWh in 2023. This demonstrates declining prices and volatility in the French wholesale market across 2023, though prices remained elevated and more volatile versus historical levels. Current forward price curves are above JEL’s current and previous long-term hedged position. As a result, we expect some potential upward pressure on retail prices in the coming years as older hedges expire. However, the tempering of wholesale market volatility is an encouraging sign for JEL’s ability to manage exposure going forward.

While the long-term equilibrium price remains highly uncertain, forward prices have trended lower to €60–70/MWh since the start of 2024 from €80–90/MWh at the end of 2023. Our updated retail price and imported energy cost models now forecast a regulated return on energy assets at the bottom of the 6–7% range. We estimate tariff increases of around 5% (in real terms from 2023 averages) will be needed in FY25 to maintain the five-year rolling return on capital within the target 6–7% range.

Exhibit 6: French wholesale electricity monthly forward curve (€/MWh)

Source: Bloomberg, Edison investment Research

Supply security standard

JEL’s system is designed to meet an adapted ‘N minus 1’ security standard. This consists of:

A one-in-eight-year winter peak demand.

All normal load in the event of the loss of the single largest submarine cable with France plus a simultaneous failure of the largest diesel generator and gas turbine.

Maintaining 75% of peak winter load for 48 hours from on-island generation (with no simultaneous loss of on-island capacity).

However, its enhanced supply security standard for 2027/28 consists of:

A one-in-20-year winter peak demand.

Meeting 99% of all demand in a one-in-three winter following the loss of all supplies from France and the simultaneous loss of the largest on-island generator.

Meeting 100% of demand in a one-in-10 winter following the loss of any submarine cables and the simultaneous loss of the two largest on-island generators.

Divisions

Energy business performance

JEL’s energy business saw revenue increase by 9.3% y-o-y to £97.1m with operating profit of £9.3m (excluding the rebate). Unit sales for the second year in a row fell to 608m (down 0.8% from 613m in FY22) due to a combination of a mild winter as well as increases in energy efficiency. Peak demand stood at 159MW (recorded 13 December 2022), which was up on the previous year’s 145MW but was still significantly below JEL’s highest-ever peak demand of 178MW set in March 2018. Of the required energy for FY23, 94.5% was imported from France (FY22: 95.3%) and 0.4% (FY22: 0.3%) was generated on Jersey Island from its solar PV arrays and diesel plant. The remaining 5.1% was purchased from the GoJ’s energy from waste plant.

Other business performance

Powerhouse.je, JEL’s retail store business, saw revenues fall by 1% with profits decreasing by 22% from £1.2m to £0.9m, primarily due to higher overhead and storage costs.

Jersey Electricity Building Services (JEBS), which undertakes JEL’s fuel switching from gas and oil to electric heating and cooling systems, was temporarily affected throughout FY23 by the launch of the LCHI scheme in May 2023. Customers delayed changing their heating systems until the scheme was fully implemented and grants became available. Despite this setback, JEL’s JEBS business recovered well, recording a profit of £0.2m on revenues of £4m, roughly in line with the previous year.

Jersey Energy and its sister business unit, Channel Design Consultants in Guernsey, are now the largest mechanical, electrical and plumbing consultancy services in the Channel Islands. Throughout 2023, some of the projects completed by this unit were a new-build, first-time buyer housing development project in St John, the refurbishment of Le Marais high-rise residential blocks and the power and cooling infrastructure upgrades of various telecom exchanges. To further aid in the transition to net-zero emissions, JEL was the first business in Jersey to be accredited for undertaking commercial energy performance certificates and will lead the scheme over the coming years. JEL invested in new monitoring equipment, which will allow its clients to understand their energy usage. The equipment will also use dynamic simulation software to provide detailed analysis of a building’s energy performance, even before it has been constructed.

Jendev provides comprehensive digital enterprise resource planning solutions across all JEL’s business domains, serving both internal and external clients.

JEL’s property portfolio includes a B&Q store, a medical centre and several other commercial spaces on Queen’s Road (where JEL’s Powerhouse retail administration office is located), as well as 29 private houses and flats rented on the open market. The property business’s profit for FY23 was £1.1m (excluding the revaluation impact), which was down by £0.3m on the prior year due to the commercial spaces being vacant in March 2023. JEL is aiming for the spaces to be occupied by April 2024.

Valuation

Using the average of a 10-year DCF valuation of 611p and our SOTP valuation of 755p, we value JEL at 683p/share. This is a reduction from our previous valuation of 722p and is largely due to trimming earnings to reflect the higher power price environment that JEL will be operating in moving forward.

For our DCF valuation, we assume a WACC of 6%, a cost of equity of 6.3% and a cost of debt of 4.5% (with total debt at c 15% of capital), which is unchanged from our previous note. Our valuation assumes a terminal growth rate (TGR) of 2% (unchanged) and reflects forecasts of underlying demand growth due to the decarbonising of the Jersey economy (electricity displacing other fuels). We outline the sensitivity of our DCF valuation to assumptions in WACC and TGR in Exhibit 7 below.

Exhibit 7: Sensitivities of DCF valuation (p/share) to WACC and terminal growth rate

WACC

4.0%

5.0%

6.0%

7.0%

8.0%

Terminal growth rate

0.0%

685

546

454

388

339

0.5%

763

591

482

408

353

1.0%

865

647

517

430

369

1.5%

1009

719

559

457

387

2.0%

1225

816

611

489

408

2.5%

1585

950

679

529

433

Source: Edison Investment Research

Our SOTP valuation values JEL’s regulatory assets at £176m (slightly down from our last valuation of £177m), based on their book value and assumes JEL earns a return on these assets equal to its cost of capital (unchanged from previously). We also value the property business (rental properties owned by JEL) using a balance sheet carrying value. For the other minor assets, we apply a 10x earnings multiple.

Exhibit 8: SOTP

Components

£m

p/share

Electricity assets*

176

575

Property**

28

90

Other businesses:

13

43

Enterprise value

217

708

Net cash/(debt)

14

46

Equity value

231

755

Source: Edison Investment Research. Note: *Regulated assets. **Book value.

As a cross-check on our valuation, we compared JEL’s P/E ratio to those of its appropriate utility peers focused on energy grids and transmission, which include National Grid (UK), Red Eléctrica de España (Spain) and Terna Rete Elettrica Nazionale (Italy). This peer group currently trades at average forward FY24 and FY25 P/E multiples of 15.3 x and 15.8x, respectively. Applying these multiples to our forecast EPS for FY24 and FY25 of 29.0p and 30.7p implies valuations of 443.7p and 485.1p, respectively. Compared to JEL’s current share price of 440p, the 2024 cross-check is reasonably aligned, while the 2025 peer multiple is significantly higher. However, both valuations are below our DCF value of 611p. Due to JEL’s smaller scale and distinct decarbonisation goals, it likely has superior growth potential versus its peers, in our view, and therefore warrants a higher earnings rating. Overall, this cross-check supports our view that JEL remains attractively valued relative to the sector.

Financials

Profitability and returns: our forecasts for FY24 and FY25 assume that JEL’s core energy business delivers profitability within the range of the targeted return of 6–7% on a five-year rolling basis. For FY23, the reported return on energy assets was 7.3% (FY22: 4.2%), with a five-year rolling return of 6.2%. JEL’s operating profit for its energy business for FY23 was £12.9m (£9.2m excluding the cost of the rebate), which was up from FY22 profit of £7.5m. This increase was largely due to the increases seen in JEL’s tariffs across the year.

We forecast a regulated return of 5.5% for FY24. This is lower than the return in FY23, which in turn was higher than anticipated due to the rebate JEL received. Our FY24 estimate includes the 12% tariff increase JEL imposed from 1 January 2024. We are forecasting recurring energy operating profit of £9.5m versus £9.3m in FY23 (excluding the rebate).

Through FY25–27, when JEL has roughly one-third of its requirements hedged at largely fixed prices, we forecast returns on energy assets on a five-year rolling basis of 5.7%, 7.1% and 7.6%, respectively, assuming a further c 5% tariff increase in FY25 (in real terms from 2024 average tariff rates) to maintain a return on capital for FY26/27 in the 6–7% range.

Capex: JEL’s capital expenditure for FY23 was c £13.1m. The increase in capex for FY24 and FY25 includes the installation of new gas turbines at JEL’s La Collette Power Station as it will provide an extra 50MW of capacity at an estimated cost of £14.5m. The entire project is expected to take up to four years at a total cost of £22.6m (excluding the replacement costs of the gas turbine). JEL’s five-year capex plans consist of c £3m contracted and c £122.2m not contracted (approved in principle but still subject to formal business cases being reviewed in due course) spend, for a total of £125.2m (£94m in 2022).

Exhibit 9: Capital expenditure and depreciation

FY15

FY16

FY17

FY18

FY19

FY20

FY21

FY22

FY23

FY24e

FY25e

Capex (£m)

16.8

32.4

15.1

14.9

13.9

11.3

9.3

11.3

13.1

20.1

23.4

Depreciation (£m)

9.9

10.3

10.7

11.2

11.6

11.4

10.9

11.0

11.4

11.6

12.0

Capex/depreciation

1.7x

3.1x

1.4x

1.3x

1.2x

1.0x

0.9x

1.0x

1.2x

1.7x

2.0x

Source: JEL, Edison Investment Research

Pensions: JEL has a defined benefit pension scheme on its balance sheet, which was closed to new members in 2013. The surplus at 30 September 2023 (excluding deferred tax of £5.1m) stood at £25.5m, down from £26.4m at 30 September 2022. Discount rate assumptions, which heavily influence the calculations of liabilities, rose from 5.2% in 2022 to 5.4% in 2023 to reflect sentiments in the financial markets. This resulted in liabilities decreasing 0.6% from £86.1m at FY22 to £85.6m at FY23 and assets falling by 1.3% from £112.5m to £111.1m. Given the unique nature of the pension arrangements (a growing surplus but with cost-of-living adjustments made on an ex-gratia basis) and a growing interest rate environment, we have removed the pension surplus from our valuation of the enterprise value of JEL. While the pension assets and liabilities both remain on JEL’s balance sheet, in a high interest rate (and cost of living) environment, liabilities for further increases on an ex-gratia payment basis cannot be excluded. We have historically included an allowance for some pension surplus in our valuation, but believe a cautious approach is to exclude this surplus from our valuation at present.

Tax: for tax payable (P&L), we assume an effective tax rate of 20% for FY24 and FY25 (FY23: 23%).

Dividends: our forecasts assume a c 6% increase in the DPS for FY24 and FY25 (20.5p and 21.7p), with a cash impact from payments of £6.27m (FY23 final and FY24 interim dividend) and £6.64m (FY24 final and FY25 interim dividend). The DPS is forecast to be substantially covered by earnings at 1.4x in FY24 and 1.5x in FY25.

Cash flow and balance sheet: in the absence of any repayment of outstanding long-term debt of £30m (which expires in 2034 and 2039) or a special dividend, we forecast that cash and cash equivalents will remain relatively stable at £44.2m in FY24 (FY23: £47.4m). We also forecast that cash and cash equivalents will continue to remain stable in FY25 at £43.7m.

Exhibit 10: Revenue forecast (£000s)

Exhibit 11: EBIT forecast (£000s)

Source: Edison Investment Research, JEL accounts

Source: Edison Investment Research, JEL accounts

Exhibit 10: Revenue forecast (£000s)

Source: Edison Investment Research, JEL accounts

Exhibit 11: EBIT forecast (£000s)

Source: Edison Investment Research, JEL accounts

Foreign currency hedging

Since a substantial proportion of JEL’s cost base relates directly to the importation of power from Europe, which is contractually denominated in euros, the company enters into forward currency contracts to hedge as much exposure as possible so it can have greater certainty on potential future tariff planning. As a result of the hedging programme, the average euro/sterling rate underpinning its electricity purchases during the financial year was €1.13/£. The average applicable spot rate during this financial year was €1.15/£ against €1.18/£ during the 2022 financial year. JEL has a long-term loan of £30m, which was drawn down on 17 July 2014 via a private placement consisting of two tranches: £15m for 20 years at a fixed-rate coupon of 4.41% and £15m for 25 years at a fixed-rate coupon of 4.52%. The terms of the loan contain financial covenants that require a net debt to regulated asset value ratio of less than 50% and an EBITDA to borrowings cost ratio greater than 4%, as defined in the loan agreement. The net debt to regulated asset ratio and the EBITDA to borrowings ratio are both calculated from JEL’s interim and annual results performance, and the company continues to meet these covenants.

Exhibit 12: Financial summary

£'000s

2020

2021

2022

2023

2024e

2025e

Year end 30 September

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

111,747

118,608

117,421

*128,671

139,484

148,242

Cost of Sales

(69,695)

(74,159)

(77,242)

(80,924)

(95,054)

(102,197)

Gross Profit

42,052

44,449

40,179

47,747

44,429

46,045

EBITDA

 

 

27,516

27,182

21,888

27,141

24,335

25,407

Operating Profit (before except.)

 

 

16,092

16,258

10,886

15,737

12,754

13,430

Exceptionals

115

4,255

(1,020)

1,215

0

0

Other

0

0

1,020

(1,215)

0

0

Operating Profit

16,207

20,513

10,886

15,737

12,754

13,430

Net Interest

(1,377)

(1,428)

(1,305)

343

(1,469)

(1,457)

Profit Before Tax (norm)

 

 

14,715

14,830

10,601

14,865

11,285

11,973

Profit Before Tax (reported)

 

 

14,830

19,085

9,581

16,080

11,285

11,973

Tax

(3,090)

(2,794)

(2,135)

(3,432)

(2,257)

(2,395)

Profit After Tax (norm)

11,625

12,036

8,466

11,433

9,028

9,579

Profit After Tax (FRS 3)

11,740

16,291

7,446

12,648

9,028

9,579

Average Number of Shares Outstanding (m)

30.6

30.6

30.6

30.6

30.6

30.6

EPS - normalised (p)

 

 

37.6

38.8

27.2

36.8

29.0

30.7

EPS - normalised and fully diluted (p)

 

 

37.6

38.8

27.2

36.8

29.0

30.7

EPS - reported (p)

 

 

37.9

52.7

23.8

40.8

29.0

30.7

Dividend per share (p)

16.5

17.4

18.4

19.4

20.5

21.7

Gross Margin (%)

37.6

37.5

34.2

37.1

31.9

31.1

EBITDA Margin (%)

24.6

22.9

18.6

21.1

17.4

17.1

Operating Margin (before GW and except.) (%)

14.4

13.7

9.3

12.2

9.1

9.1

BALANCE SHEET

Fixed Assets

 

 

250,966

267,588

278,691

273,606

280,548

289,317

Intangible Assets

3,378

4,046

4,247

3,875

5,018

5,413

Tangible Assets

217,936

216,550

216,235

216,136

222,008

230,455

Investments

29,652

46,992

58,209

53,595

53,522

53,449

Current Assets

 

 

59,153

68,045

74,987

82,639

80,376

79,029

Stocks

6,028

6,909

7,173

9,187

9,480

9,311

Debtors

15,745

18,000

19,934

25,959

26,653

25,957

Cash

35,520

43,136

47,397

47,429

44,179

43,697

Other

1,860

0

483

64

64

64

Current Liabilities

 

 

(21,143)

(22,721)

(23,530)

(23,377)

(24,843)

(28,463)

Creditors

(21,078)

(22,649)

(23,461)

(23,296)

(24,762)

(28,382)

Short term borrowings

(65)

(72)

(69)

(81)

(81)

(81)

Long Term Liabilities

 

 

(83,037)

(87,471)

(90,774)

(91,324)

(94,008)

(96,587)

Long term borrowings

(32,879)

(33,035)

(33,251)

(33,193)

(33,193)

(33,193)

Other long term liabilities

(50,158)

(54,436)

(57,523)

(58,131)

(60,815)

(63,394)

Net Assets

 

 

205,939

225,441

239,374

241,544

242,074

243,295

CASH FLOW

Operating Cash Flow

 

 

31,019

26,525

25,762

21,259

27,667

32,646

Net Interest

(1,237)

(1,283)

(1,355)

160

(1,469)

(1,457)

Tax

(2,714)

(2,742)

(3,020)

(2,089)

(3,301)

(1,831)

Capex

(11,259)

(9,318)

(11,320)

(13,138)

(20,062)

(23,405)

Acquisitions/disposals

24

6

7

3

0

0

Financing

(311)

(557)

(573)

(357)

0

0

Dividends

(4,917)

(5,178)

(5,453)

(5,760)

(6,085)

(6,435)

Net Cash Flow

10,605

7,453

4,048

78

(3,250)

(482)

Opening net debt/(cash)

 

 

5,085

(2,576)

(10,029)

(14,077)

(14,155)

(10,905)

HP finance leases initiated

(2,944)

0

0

0

0

0

Other

0

0

0

0

0

(0)

Closing net debt/(cash)

 

 

(2,576)

(10,029)

(14,077)

(14,155)

(10,905)

(10,423)

Source: JEL accounts, Edison Investment Research. Note: *2023 revenue includes rebate of £3.6m.

Contact details

Revenue by geography

Jersey Electricity
The Powerhouse
PO Box 45
Queen’s Road
St Helier
Jersey JE4 8NY
+44 (0)1534 505460
www.jec.co.uk

Contact details

Jersey Electricity
The Powerhouse
PO Box 45
Queen’s Road
St Helier
Jersey JE4 8NY
+44 (0)1534 505460
www.jec.co.uk

Revenue by geography

Management team

Chairman: Phil Austin

Chief executive: Chris Ambler

Phil Austin became chairman of JEL in February 2019 having served as a non-executive director since 2016. From 1997 to 2001 Mr Austin was deputy CEO of HSBC’s offshore island business and in 2001 became founding CEO of Jersey Finance. In 2006 Mr Austin joined Equity Trust as CEO and since 2009 he has held a number of non-executive positions and is a non-executive of 3i Infrastructure, City Merchants High Yield Trust and Blackstone/GSO Loan Financing.

Chris Ambler has served as chief executive since 2008, having previously held senior positions in the utility and materials sectors. He is a chartered engineer with the Institution of Mechanical Engineers and holds an MBA from Insead. Mr Ambler is a non-executive director of Apax Global Alpha and Foresight Solar Fund.

Finance director: Lynne Fulton Martin Magee

Lynne Fulton joined JEL in spring 2023, working alongside the outgoing finance director, Martin Magee, to enable an effective handover of responsibilities in the summer of 2023. Before joining JEL Ms Fulton was the financial controller of United Utilities Group.

Management team

Chairman: Phil Austin

Phil Austin became chairman of JEL in February 2019 having served as a non-executive director since 2016. From 1997 to 2001 Mr Austin was deputy CEO of HSBC’s offshore island business and in 2001 became founding CEO of Jersey Finance. In 2006 Mr Austin joined Equity Trust as CEO and since 2009 he has held a number of non-executive positions and is a non-executive of 3i Infrastructure, City Merchants High Yield Trust and Blackstone/GSO Loan Financing.

Chief executive: Chris Ambler

Chris Ambler has served as chief executive since 2008, having previously held senior positions in the utility and materials sectors. He is a chartered engineer with the Institution of Mechanical Engineers and holds an MBA from Insead. Mr Ambler is a non-executive director of Apax Global Alpha and Foresight Solar Fund.

Finance director: Lynne Fulton Martin Magee

Lynne Fulton joined JEL in spring 2023, working alongside the outgoing finance director, Martin Magee, to enable an effective handover of responsibilities in the summer of 2023. Before joining JEL Ms Fulton was the financial controller of United Utilities Group.

Principal shareholders – listed shares only* (JEL)

(%)

Huntress (CI) Nominees

17.0

*Explanatory note from page 54 of the FY23 reports and accounts – 62% of the ordinary share capital of the company is owned by the GoJ with the remaining 38% held by around 600 shareholders via a full listing on the London Stock Exchange. Of the holders of listed shares, Huntress (CI) Nominees owns 5.4m (46%) of JEL’s ‘A’ ordinary shares representing 17% of its overall ordinary shares and around 5% of voting rights.


General disclaimer and copyright

This report has been commissioned by Jersey Electricity and prepared and issued by Edison, in consideration of a fee payable by Jersey Electricity. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

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This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

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London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by Jersey Electricity and prepared and issued by Edison, in consideration of a fee payable by Jersey Electricity. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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