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The Mercury NZ (ASX:MCY) share price zaps up. Here’s why

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The Mercury NZ Ltd (ASX: MCY) share price was slumping throughout today after the company reported its half-year results this morning.

However, in a last-minute flash before closing, the Mercury share price zapped up from $5.73 to find positive territory at $5.99.

Mercury NZ is one of the largest electricity generators and suppliers in New Zealand.

What financial results did Mercury report?

This morning’s ASX release failed to lift the Mercury share price, despite showing a big increase in earnings and profits for the half-year ending 31 December 2020 (H1 FY21).

Mercury reported a 14% increase in earnings before interest, tax, depreciation, amortisation, change in the fair value of financial instruments, and gain on sale and impairments (EBITDAF). This increased by $36 million from the first half of FY20 to reach $294 million in H1 FY21.

Underlying earnings after tax of $115 million was up 28% over the prior corresponding period.

The company credited a higher energy margin associated with generation and customer portfolio decisions, along with additional trading profits and cost control for much of the revenue lift.

Mercury noted that drier weather had negatively impacted its hydropower generation during the half year, with 108 GWh lower overall generation. Overall electricity generation dropped 3%.

Operational expenditure decreased by $7 million year-on-year to $87 million.

Mercury will pay an interim dividend of 6.8 cents per share (cps), fully franked, up 6% from H1 FY20. The dividend will be paid on 1 April.

Words from the management

Commenting on the results, Mercury NZ CEO Vince Hawksworth said:

Guiding our evolution is our desire to balance the internationally recognised energy trilemma of ensuring that we achieve our sustainability goals, keep the lights on for New Zealanders and do this all at the least-cost for consumers.

Mercury wants to take advantage of renewable energy opportunities presented by the New Zealand Climate Change Commission’s draft report.

Hawksworth said:

Mercury is looking forward to supporting swift action from the government to respond to the findings… It is pleasing to see strong support for transport electrification, with the government already committed to an emissions standard and considering other incentives to support a faster transition.

Looking ahead, Mercury downgraded its full 2021 financial year EBITDAF guidance from $535 million to $520 million.

The company expects dry weather to continue to impact hydro generation over the coming months and said ASX electricity futures indicated wholesale prices were likely to remain high for the rest of FY21.

Mercury share price snapshot

The Mercury share price has been a solid performer over the past 12 months, up 11%. That compares to a 2% loss on the S&P/ASX 200 Index (ASX: XJO).

With today’s intraday gain factored in, year-to-date, the Mercury share price is down 5.8% so far in 2021.

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Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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