Morningstar | Trustpower Firms Guidance; FVE up 3%
Narrow-moat Trustpower’s financial year finished March 31, 2019, allowing the firm to increase the precision of its fiscal 2019 EBITDA guidance. It now expects EBITDA of NZD 220 to 226 million, compared with prior guidance of NZD 215 to 235 million. Full-year results are released on May 13, 2019 and we think EBITDA will be close to the top of the new guidance range.Management also provided fiscal 2020 EBITDA guidance of NZD 205 to 225 million, down on 2019 due to a range of minor, mostly expected factors. The outlook for the New Zealand electricity sector is benign as modest demand growth helps the electricity market tighten. We marginally increase long-term wholesale and electricity price forecasts, and increase our fair value estimate 3% to NZD 6.10 per share. At the current price, Trustpower is slightly overvalued.
While close to our prior forecast, fiscal 2020 guidance is better than expected, in that it is based on lower hydro generation than we were factoring in. In other words, same earnings from less hydro generation. So as hydro generation improves back to average levels implicit in our longer-term forecasts, earnings should improve further.
Fiscal 2019 hydroelectric generation output fell 11% to 1,994 gigawatt hours. This was actually a good result, being above the long-term average of 1,917 GWh, but just not as good as the prior, stellar year. Fiscal 2020 guidance assumes a below average year generating 1,870 GWh because of current low lake storage levels. Thereafter, we assume output reverts to mean.
Trustpower will lose a little over NZD 5 million in “avoided cost of transmission†revenue in fiscal 2020. We forecast it loses close to another NZD 10 million in 2021, in total losing around half its ACOT revenue following a change to eligibility. Earnings will also be hurt by an accounting change, lower meter revenue and increased costs, which together will detract another NZD 10-15 million from earnings. However, these negatives should be mostly offset by stronger electricity prices.
Trustpower is an electric power generation and retail group based in New Zealand. Co. and its subsidiaries are engaged in the development, ownership and operation of electricity generation facilities from renewable energy sources and the retail sale of electricity and telecommunications services to its customers. Co. owns and maintains 36 small to medium size Hydro Generating Stations and two Wind Farms, with a further Wind Farm in South Australia. Co. is engaged in the production of electricity from renewable sources and its power stations produce enough electricity for around 220,000 New Zealand households.
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