Morningstar | Meridian on Track for Double-Digit EBITDA Growth in FY19
We retain our NZD 3.20 fair value estimate for narrow moat-rated Meridian Energy following the release of monthly operating statistics for November. After dry conditions last year, fiscal year-to-date rainfall into Meridian's catchments is back to nearly average levels, and Meridian's catchments boast better-than-average levels of storage. Generation volumes are up, year to date, and on track to grow at our forecast of 6% over fiscal 2019. We expect this momentum to continue, and good levels of lake storage should support generation volumes if rainfall falls below average.Despite November's generation volumes ending 7% lower than the same month last year, Meridian's fiscal 2019 year to date still boasts generation volumes nearly 11% higher than the same period last year. This remains in line with our forecast of 6% growth for the full year as the firm cycles a dry spell in early fiscal 2018.
With wind generation only slightly up, hydro generation is doing the heavy lifting. Improved rainfall compared with the dry start to fiscal 2018 has led to strong hydroelectric generation volumes. This should support an increase in energy margin, which we estimate is up nearly 13% year to date. While this outpaces our full fiscal 2019 forecast of 10%, we expect this to come off as the company cycles the comparatively stronger second half of fiscal 2018.
Our longer-term forecasts remain intact. While temporary weather issues create fluctuations in earnings over the short term, these are mostly immaterial to our fair value estimate. Meridian generates strong cash flows, and we expect the company's balance sheet to remain conservative. We forecast net debt/EBITDA to be around 1.6 times in fiscal 2019, below most peers.
Inflows in November were 23% above the historical average for this time of year--lifting financial year-to-date inflows to 99% or average. Storage at Meridian's main catchment, Waitaki, lifted to 114% of historical average by the end of November, and the Waiau catchment is now only slightly below average for this time of year. Good lake storage levels should support strong generation volumes for the near term.
Meridian Energy is engaged in the generation, trading and retailing of electricity, related products and services. Co. operates in three reportable segments. The wholesale segment includes generation and sale of electricity to wholesale market; purchase and resale of electricity to industrial and retail customers; development of New Zealand renewable energy generation opportunities; and provision of risk management and dam consultancy services. The retail segment includes purchase and sale of electricity to retail customers; and provision of metering services. The international segment includes generate, sale and retail of electricity within Australia and United States.
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