Last week New Zealand energy company Genesis Energy Limited (ASX: GNE) listed on the ASX, offering income investors another strong cash flow producing company to choose from.
This brings the total number of NZ energy companies listed on the ASX to four if we include Origin Energy Limited (ASX: ORG), which owns 53.09% of NZ listed company Contact Energy Limited. But which company is right for your money?
|
Company |
Market Cap |
Dividend Yield (FY14) |
FY13 – FY14 NPAT growth (forecast) |
| Genesis Energy Limited (ASX: GNE) |
$1.43 billion¹ |
7%¹ |
-60% |
| Meridian Energy Limited (ASX: MEZCA) |
$3.55 billion |
6%¹ |
-36% |
| Mighty River Power Limited (ASX: MYT) |
$2.79 billion |
5.6% |
40% |
| Origin Energy Limited² (ASX: ORG) |
$15.9 billion |
3.5% |
0.3%³ |
¹FY14 prospectus forecasts. ²Origin Energy owns 53.09% of Contact Energy Limited. ³Morningstar forecast
All four companies are very different, with earnings driven by different mixes of energy production, electricity distribution and retail sales. Meridian Energy Limited (ASX: MEZCA) commands the largest electricity generation market share at 31.4%, but one of the lowest shares of consumers at just 14%.
In contrast, Genesis Energy holds just 16.8% of total electricity generation, but has the largest share of energy consumers at 26.8%. Contact Energy fits between the two as the second largest generator and consumer operator.
However, despite the reoccurring demand for electricity, the industry comes with some big risk factors. The table above shows how variable earnings can be from one year to the next with the various service mixes and different types of electricity generation used.
NZ's electricity market is also a mature industry with minimal growth, high competition and a number of risks to future earnings. One substantial risk all companies face is the risk of a flood of electricity capacity if the Rio Tinto Limited (ASX: RIO) owned Tiwai Point Aluminium Smelter is closed down. The smelter used 13% of all electricity produced in 2012 and Rio has previously looked to close the plant, only to be staved off by a NZ$30 million injection by the government,
Foolish takeaway
Of the four companies Genesis Energy would be my preferred company in the next year because of its strong forecast dividend yield in FY15 and its diversified mix of energy production. However the risk factors present in the industry mean I would wait for a bargain share price before considering the others.
