EUR 850.00 For Business Accounts Only

Morningstar | EPS growth driven by share buybacks and synergies after merger.

A merger of equals two years in the making finally closed on June 4, 2018 when Great Plains Energy and Westar Energy combined to create Evergy. The merger creates a regulated utility with a solid balance sheet, significant investment opportunities in wind energy and transmission, and more flexibility to meet environmental requirements.Evergy's service territory encompasses healthy economies in Kansas and Missouri. We expect the underlying strength of the Kansas City economy to drive continued demand for housing. The unemployment rate across Evergy's service territory varied between 3.4% and 3.7% in June and job growth remains strong. Job growth and housing demand should be a tailwind for Evergy’s future earnings and dividend growth.Management estimates the merger will have $150 million-plus in synergies because of the contiguous service territories and the joint ownership of three power plants, including the Wolf Creek nuclear generating station. We agree and believe there is a high likelihood Evergy will achieve the synergies. Regulatory conditions have recently improved in Missouri, home to about one-third of earnings and rate base. However, even with these improvements in regulatory framework, we continue to consider Missouri’s regulation below average versus other states in the way investors are treated. This difficult regulatory jurisdiction is partially offset by wide-moat FERC-regulated electric transmission that represents 12% of rate base.Great Plains shareholders received 0.5981 shares of Evergy for every Great Plains share they own. Westar shareholders received one for one. The dividend was adjusted to $1.84 per share annualized in the 2018 third quarter, resulting in a 15% increase for former Westar shareholders and keeping former Great Plains shareholders whole. We forecast 7% annual dividend increases going forward.