Meridian Energy Limited

MEZ Details

Key Business Updates: Meridian Energy Limited (ASX: MEZ) is New Zealand’s largest electricity company with three segments – Wholesale, Retail, and International. Notably, the Government retains 51% ownership of the company.

• Dividend Reinvestment Plan: As announced on 6 October 2021, MEZ will issue 2021 Final Ordinary Dividend under MEZ’s Dividend Reinvestment Plan (DRP) for NZ$4.8407/share. Shareholders, who have been elected in the DRP, will receive the shares on 15 October 2021.
• Rights Issue: As announced on 6 October 2021, MEZ decided to commence a rights issue to specific employees of MEZ in connection with the Executive LTI Scheme.

FY21 Financial Performance

FY21 Snapshot; Analysis by Kalkine Group

Key Risks: The company is susceptible to high demand risks, market supply constraints, and downside risks in Wholesale and Retail market prices.

Outlook

MNZ’s liquidity position is resilient and holds a stable corporate rating of BBB+/A-2 from S&P Global Ratings. During FY21, MEZ embarked upon 157 GWh in MOU’s and 14 GWh in contracts which shall deliver improved top-line sustainability in future. MEZ also launched 20 out of 250 AC charging networks which shall provide diversification benefits.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock’s historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of MEZ gave a negative return of ~16.817% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $4.58 - $9.330. The stock has been valued using the EV/EBITDA multiple-based illustrative relative valuation method and arrived at a target price low double-digit (in percentage terms). However, the company might trade at a slight discount to its peers’ average EV/EBITDA, considering lower energy margins from New Zealand and Australia. For this purpose of valuation, few peers like Origin Energy Ltd (ASX: ORG), Spark Infrastructure Group (ASX: SKI), AusNet Services Ltd (ASX: AST) have been considered. Considering the prompt balance of power generation and sales volume, asset portfolio diversification measures, prudent liquidity position, current trading levels, and valuation, we give a “Buy” recommendation on the stock at the market price of $4.580, as of 15 October 2021, 12:41 PM (GMT+10), Sydney, Eastern Australia.

MEZ Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined: - 

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest. 

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest. 

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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