Sharechat Logo

Genesis may struggle to increase turbo charged dividend, says Forsyth Barr

Friday 21st March 2014

Text too small?

Genesis Energy, New Zealand's largest energy retailer, is expected to be a strong initial performer when it lists next month because of its attractive near-term dividend yield, but may struggle to offer dividend growth over the longer term, according to brokerage Forsyth Barr.

The government plans to sell between 30 to 49 percent of the company at an indicative offer price of $1.35 to $1.65. A "turbo charged dividend" implies a gross yield of 13.5 percent to 16.5 percent in 2015, making Genesis a "very attractive offer on first glance", Forsyth Barr analysts Andrew Harvey-Green and James Bascand said in a research note.

Genesis is the last company on the block in the government's partial-privatisation programme ahead of September's election. Unlike last year's offers by MightyRiverPower and Meridian Energy, Genesis plans to maintain a dollar amount of ordinary dividend payments to provide investors with consistent returns even in periods of weaker earnings. Still, the estimated 16 cents per share dividend in 2015 is as much as Genesis can afford without increasing debt levels, the analysts said.

"The high dividend is what stands Genesis apart from the other gentailers and in our view Genesis has pushed the dividend harder than its peers," according to Forsyth Barr. "The yield is impressive and cannot be ignored, albeit we believe growing the dividend will be a challenge. Any hiccup in earnings....and Genesis will be borrowing to pay the dividend - not a great look in our view."

The company's gearing ratio, measured as net debt divided by net debt plus equity, is expected to increase to 35.4 percent in 2015, from 34 percent in 2013, the brokerage said.

In addition to the dividend, investors who hold the shares for a year will receive a bonus share for every 15 they hold, up to a maximum of 2,000 shares, adding 6.7 percent to the initial yield, the brokerage said.

Forsyth Barr expects Genesis to be held alongside Meridian as the two would balance each other in a portfolio. Meridian has large hydroelectric interests and performs well during years of high rainfall while the thermal output of Genesis performs well in periods of low water.

The brokerage will rate Genesis "outperform" if the final offer price is $1.54 or below and "neutral" if the price is $1.55 or more. Genesis is scheduled to list on April 17.

 

BusinessDesk.co.nz

  General Finance Advertising    

Comments from our readers

No comments yet

Add your comment:
Your name:
Your email:
Not displayed to the public
Comment:
Comments to Sharechat go through an approval process. Comments which are defamatory, abusive or in some way deemed inappropriate will not be approved. It is allowable to use some form of non-de-plume for your name, however we recommend real email addresses are used. Comments from free email addresses such as Gmail, Yahoo, Hotmail, etc may not be approved.

Related News:

Mercury points to peaking gains as FY production drops 10%
Asset Plus sells Heinz Watties distribution centre for $29.1 mln
18th July 2019 Morning Report
COMMENT: RBNZ's key political omission in its bank capital proposals
ANZ and Westpac credit rating outlooks downgraded to 'negative' outlook: Fitch
MARKET CLOSE: NZ shares edge higher in quiet trading; weaker currency buoys exporters
NZ dollar stalled amid uncertainty about US rate cuts
RBNZ a 'poor communicator' - CBL's Harris
Methane reduction target could be catastrophic - Fonterra Shareholders' Council
Greater role for gas in electrification of transport, industry

IRG See IRG research reports