25 September 2013 Meridian Energy Limited Cash Flow Powerhouse Important Notice, Disclosures, Limitations & Disclaimer – Please refer to page 2 for important disclosures, limitations and disclaimer. • Meridian Energy Limited (Meridian) is New Zealand’s largest electricity Analyst generator, generating around 13,000 GWh annually from low cost hydro and Nevill Gluyas, CFA wind sources. It supplies 272,000 customers and 5,000 GWh p.a. to the Tiwai +64 4 496 5338 Point aluminium smelter. Reliance on hydro generation and its influence on
[email protected] electricity prices can result in significant earnings volatility from year to year. • Our risk weighted DCF valuation of $2.00 per share assumes Tiwai smelter remains operating at a 1,500GWh reduced load after 2015 and that real electricity prices increase from circa $70/MWh to $80/MWh by 2025. It also incorporates a modest chance of the Labour/Greens policy being implemented and a chance that Tiwai smelter may close. In contrast, using comparable valuation multiples for Contact Energy (CEN) and Mighty River Power (MRP) imply Meridian shares may trade around $1.50. • We estimate the Labour/Green proposal to reform the NZ electricity market would reduce our base case valuation by $0.69 to $1.39. However, the estimated impact of Tiwai smelter closing is only $0.02 per share. • Factors which could result in an increase in Meridian’s share price include: • • Potential revision of transmission pricing - $0.25 per share. • • Cost reductions - $0.10 per share. • Retail electricity margin improvement - $0.05 per share. Meridian Energy Cash Flow Powerhouse Important Notice, Limitations and Disclaimer Important Notice: Before making an investment decision, investors must consider whether they have sufficient information also having regard to their particular investment needs, objectives, level of acceptable risk and financial circumstances and, if necessary, seek financial advice.