Market News 28 October 2024
Johnny Lee writes:
Genesis Energy has presented an update on its ‘’8 by 28’’ strategy, as the company gears up for a busy four years.
Solar remains front and centre for the company, and its first solar generation is expected by year’s end. The goal remains to operate 500 MW of new solar by 2028.
Genesis did highlight that debt constraints may mean the company will need to explore alternative options for new generation.
Designing, constructing and operating its own assets remain the fastest and most profitable avenue for the sector. However, this is expensive, and Genesis is limited by its ability to fund such projects until the debts incurred can be repaid.
Offtakes – where Genesis simply agrees to purchase from third parties' construction, is less profitable but provides a way for such third parties to accelerate and de-risk new generation.
A third approach would be to create and provide equity towards SPVs – Special Purpose Vehicles – in conjunction with a partner. Genesis would agree to buy the generation at a low cost, providing certainty for lenders that the project would generate certain cashflows.
Genesis may utilise all three approaches over the next four years as it looks to roll out a number of new projects, particularly in the solar space. There are limits to the amount Genesis can borrow, and these projects will take time to provide a return on investment.
Outside of the new generation, two other projects are in focus for the company.
The first is the ‘’Battery Energy Storage System’’ at Huntly. Genesis recently announced its partnership with French oil giant TotalEnergies – more specifically its subsidiary Saft – to supply a battery-based solution to provide the Huntly station with more flexibility for dispatching power during times of low generation. This project is expected to be operating in 2027.
The other is its biomass market review, which Genesis has now completed. Genesis is now in the process of determining whether this sector can be economically viable, both in terms of costs and supply chains. It may come to nought - ultimately Genesis will seek the most cost-effective way of meeting its goals - and the biomass project would need to offer compelling value to justify serious investment.
Genesis’ decision to reposition itself as a future leader in solar was not universally liked by shareholders. Dividends have been halved and the share price remains in the doldrums. Recouping that value as it rolls out its new strategy over the next four years will be of paramount importance.
There were two brief financial updates from a pair of iconic New Zealand companies last week, with Skellerup and Michael Hill illustrating the advantage of geographic diversification.
Skellerup’s update to the market on Thursday gave shareholders some good news, prior to the start of its annual shareholders meeting.
Skellerup now expects 2025’s result to be a new record, rising from $46.9 million to around $54 million.
Its share price rose 3% following the news.
The company did note that footwear sales continue to struggle, placing the blame on weak economic conditions in New Zealand and a lack of consumer confidence.
Skellerup is down 1% this year and down 4% over the last two years.
Michael Hill has also published an update to the market. The update relates to the first fourteen weeks of its financial year.
Both Australia and Canada have enjoyed sales growth of around 6%, while New Zealand sales have declined by around 5%.
Moving forward, the company reiterated that new brand initiatives and better cash management will be its main focus for the year.
The combination of a record gold price, growing competition and a consumer looking to cut costs has seen profits flatline and dividends cut altogether.
Michael Hill’s share price is down 35% this year alone. The growth observed outside of New Zealand will be encouraging, but the local retail sector hopes for better conditions soon, as interest rate relief appears on the horizon.
Santana Minerals shareholders have overwhelmingly approved the vote to split their shares, with 94% of votes cast in favour of the resolution.
Santana proposed the split after receiving advice that a lowered base price would improve liquidity and trader interest.
The share price fell immediately to adjust to the split figure. Interestingly, the reduced price did entice some new buyers at prices that did not reflect the adjustment – after closing the day prior at $2.25 – or 75 cents equivalent – the price rose quickly to 84 cents after opening.
The price decline may have caused some alarm to shareholders who do not follow the day-to-day news of the company. It is important to recall that shareholders now own three times the number of shares they held prior to the split.
Those who do follow the day-to-day price may have noticed the Australian price did not follow suit. This was due to the public holiday in New Zealand, which forced Santana to bring the ex-date of the split forward a day on the NZX.
Shareholders will soon receive correspondence from MUFG (formerly Link Market Services) with their new shareholding.
The four new ‘’Smart’’ Exchange Traded Funds have listed, with one new fund proving particularly popular within retail investor circles.
Smart is the NZX-owned ETF provider, previously known as Smartshares.
The four new funds included a US technology stock fund, a gold fund, a Bitcoin fund and a NZX20 fund.
The Bitcoin fund saw significant interest in its first week with nearly a thousand trades occurring. These trades were not large in size, with most of the trades below $500 in value.
Regardless of one’s views on the value of Bitcoin and cryptocurrencies in general, the new ETF will provide those interested in such products a more reputable avenue to pursue ownership. The large-scale failures of various cryptocurrency exchanges and trading platforms highlighted the lack of regulation and consumer protections in this field, and Smart has clearly identified a niche in the market. Investor choice should always be welcomed.
For those familiar with investing in such funds, the Bitcoin ETF carries a rare 7 out of 7 on the risk indicator scale. Certainly, those who have observed Bitcoin over time will have noted the rather extreme fluctuations of value. Over the last five years, traders have seen its value increase by 400%, fall by 70% before growing again by 350%. It is not for the faint-hearted.
Investors should remember that Smart’s decision to offer access to this fund is not an endorsement of the Bitcoin product. There is obviously considerable demand from small scale investors to speculate on Bitcoin, and Smart has taken the opportunity to provide the means to do so. One imagines Smart will continue to search for products of interest to New Zealanders, and look to bring more products to our bourse.
The gold fund is an example of this. Previously, some investors seeking a direct gold exposure would utilise Australian listed products, or purchase actual physical gold. Now, investors can achieve this locally through the stock exchange.
The new funds trade and settle like any other listed company on the NZX. The new funds use the codes BTC (Bitcoin fund), GLD (Gold fund) UST (US technology fund) and NZT (New Zealand top 20 fund).
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