Genesis Energy's Huntly power station. Photo / NZ Herald
A cloud of uncertainty overhangs the energy sector while the Electricity Authority (EA) reviews competition in the wholesale electricity market.
The review covers the period from 2018 to early 2021, including analysis of spot and forward prices.
In a briefing paper to the Minister of Energy and Resources Megan Woods, the EA said it expected to complete its review next month on competition in the spot and forward markets.
The review arises from concerns about the high spot prices seen this year due to dry year risks.
The briefing paper notes that in recent months, spot prices have been high in response to security of supply, reflecting low hydro-lake levels, shortages in gas supply and low levels of wind.
The authority has been working with the Ministry of Business, Innovation and Employment, and the electricity sector to respond to the emerging issues and ensure the electricity system is "future-fit".
Harbour Asset Management portfolio manager Shane Solly said the review had given power utility investors, who have become accustomed to reliable earnings and dividend flow, cause for reflection.
"The investment community is watchful of any changes in regulatory structure within the energy sector," Solly said.
"It will be very clearly scrutinised. At this stage, there are quite a few factors that are going on out there," he said.
Pumped hydro - a way of storing and using water independently of natural inflows - is being looked at but is still far away on the horizon.
Then there is the issue of the Tiwai Point aluminium smelter and the rebalancing of the power system that will be required when the facility shuts, as expected, in 2024.
"A lot of weight is placed on the power companies in terms of the certainty of earnings that they provide, but the market is mindful of what may lie ahead," Solly said. "It's a bit of a cloud over the sector," he said.
Genesis Energy has opted to retain its 46 per cent stake in the Kupe oil and gas field but brokers Forsyth Barr have not ruled out a sale further down the track.
The company, which is 51 per cent owned by the New Zealand Government, said the asset had attractive cash flow and a strong growth outlook.
But after a thorough review process, the Genesis board had concluded that ongoing ownership of Kupe was in the best interests of shareholders and the company.
"Kupe remains a high-quality gas asset and will continue to play a key role in New Zealand's transition to a lower-carbon future," it said.
Forsyth Barr said it always looked as if Kupe would be a tricky sales process, but the strategic rationale for Genesis owning its stake in Kupe would get weaker over time as thermal generation plant is retired.
Meanwhile Genesis's fourth-quarter operating statistics were strong, with momentum in the retail business continuing and favourable June 2021 wholesale market conditions.
The broker has lifted its full year Ebitdaf forecast by $16m to $408m.
"Genesis has good momentum in its business at present and we reiterate our outperform rating," the broker said.
The broker was not greatly surprised that Kupe was not sold.
"It is slightly disappointing a sale has not occurred, as a sale would have helped Genesis's ESG credentials, and long-term Genesis is not a natural owner of Kupe," Forsyth Barr said.
"We suspect Genesis will try again to sell Kupe after an additional production well is drilled at some point the next two to three years, as after that there will be more certainty around Kupe oil and gas reserve volumes," it said.
Genesis is due to report its result for the June year on August 26.
Shares in NZME, publisher of the New Zealand Herald, hit a record high of $1.03 this week.
The company, which is due to report its first-half result in August, said at its annual meeting in April that based on continued recovery of revenue and the permanent cost reductions made during 2020, that it continued to expect profit growth for 2021.
"Net debt is expected to continue to reduce and based on this outlook and NZME's capital requirements, the board continues to expect to pay an interim dividend for 2021, in the second half of the year," chief executive Michael Boggs said at the time.
Early this month, San Francisco-based Osmium Partners increased its stake in NZME to 19.1 per cent from 18.0 per cent.
Osmium says it focuses on investing in high-quality, small capitalisation public equities "via an exhaustive, bottom-up research process", according to its website.
NZME listed in 2016.
Mangere-based, ASX-listed soft tissue regeneration company Aroa Biosurgery has successfully undertaken an oversubscribed A$47 million placement at A$1.165 a share.
Aroa said US medical procedure numbers continued to reflect a positive trend supporting improved sales.
The funds would ensure greater flexibility to fund incremental investment in its US commercial operations, accelerate and broaden its research and development product pipeline and increase its cash on balance sheet.
Post placement, Aroa's cash at bank will reflect a debt-free position.
Aroa has also launched a A$5 million share purchase plan.
Privately-owned Australasian steel products distributor Vulcan Steel has conducted a "non-deal" roadshow and may list on the NZX and ASX.
Vulcan was planning to float on the two exchanges, which could value the company at up to A$1billion, according to Australian media reports.
Vulcan, which has a New Zealand base in Auckland, is understood to be bringing in more than NZ$700 million a year revenue and NZ$100m in Ebitda.
Going on the heavy hitters on its board, Vulcan would not look out of place as a listed entity.
Vulcan, which originated in New Zealand, has been going for 25 years.
"They have carefully grown in what has historically been a very fragmented market across New Zealand and Australia," one local fund manager said.
The company is chaired by Russell Chenu, who has held finance and management roles in several ASX-listed industrial and resources companies, including James Hardie, where he was CFO for 10 years until 2013.
Among the directors is Rhys Jones, who joined Vulcan in 2005, having previously held several management positions within the steel industry, including an executive of EasySteel NZ and CEO of Pacific Steel and Wire Makers.
He was formerly the chief operating officer of Carter Holt Harvey's Pulp, Paper and Packaging at the time of the Rank Group takeover.
Also on the board is Peter Wells, who has 40 years' experience in the steel industry in New Zealand, Australia, Sweden, South Africa and England.
Former Telecom (now Spark) chairman Wayne Boyd and Pip Greenwood, formerly interim CEO of Russell McVeagh, are also on the board.
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