Genesis Energy leverages its diversified energy business model to generate attractive shareholder remuneration, with Bloomberg consensus estimates implying an FY19e dividend yield of 7.2%, towards the top end of utilities globally. The company has a strong track record on delivering attractive remuneration to shareholders and on generating enough cash flow to cover dividend payments.
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Genesis Energy |
High dividends from diversified energy model
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Utilities |
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31 October 2018 |
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Genesis Energy leverages its diversified energy business model to generate attractive shareholder remuneration, with Bloomberg consensus estimates implying an FY19e dividend yield of 7.2%, towards the top end of utilities globally. The company has a strong track record on delivering attractive remuneration to shareholders and on generating enough cash flow to cover dividend payments.
Diversified/integrated energy business model
Genesis Energy’s strategic focus is to leverage its diverse power-generation asset mix to provide flexible services to a market characterised by a very high share of renewables (>80%), and to leverage its integrated fuel position to minimise costs for the company and its customers. Genesis is preparing for the energy transition, consistent with the government’s environmental policy of zero emissions by 2050. The key catalyst will be the strategic update at the Investor Day on 7 November.
Key focus is on attractive shareholder remuneration
Genesis Energy’s key focus is on maintaining an attractive dividend yield plus delivering growth, with a view of generating top-quartile total shareholder returns. Over the period FY14-18, the dividend yield averaged 7.5% and EBITDA grew 4% pa. Bloomberg consensus implies 7.2% FY19e dividend yield. Historically, Genesis’ cash flow generation has justified the high dividend payment – over the period FY15–18, the average payout ratio was 90% (calculated as a percentage of free cash flow, while the figure calculated on net income is significantly higher, at >200%). The current share price implies a 2019e EV/EBITDA of c 10x and a high P/E (38x) as earnings are depressed by high depreciation, depletion and amortisation (DD&A) – in FY18, DD&A was c 4x the ‘stay in business’ capex).
Consensus estimates in line with company targets
Genesis reported FY18 EBITDAF growth of 8% y-o-y to NZ$361m, mostly driven by acquisitions and record Kupe gas production. However, underlying net earnings were down 22% y-o-y to NZ$58m, reflecting costs related to brand and marketing (partly one-off), staff investments and an increase in DD&A. Bloomberg consensus for FY19 EBITDAF of NZ$359m is broadly flat y-o-y and in line with the company guidance of NZ$350–370m. Genesis expects FY20 EBITDAF to be affected by planned oil & gas field outage and increased emissions costs (consensus is NZ$369m), while the FY21 target is >NZ$400m EBITDAF (consensus NZ$392m). FY18 net debt/EBITDAF of 3.0x was at the top end of the targeted range of 2.4-3.0x and consensus expects it to remain at around that level in FY19.
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Consensus estimates
Source: Bloomberg, Edison Investment Research. |
EDISON QUICKVIEWS ARE NORMALLY ONE OFF PUBLICATIONS WITH NO COMMITMENT TO WRITING ANY FOLLOW UP. QUICKVIEW NOTES USE CONSENSUS EARNINGS ESTIMATES.
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Disclaimer
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Disclaimer
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ERM Power is refocusing on its core business by selling the US business and investing in the highest growth part of its Australian activities. We have increased our forecasts to reflect the accretive effect of the recent transactions and see more upside potential to the share price following the recent recovery as valuation multiples appear undemanding and the dividend yield is attractive.