Mercury NZ: Higher Sales Prices Are Offsetting Lower Hydroelectric Volumes

We maintain our NZD 5.20 fair value estimate for narrow-moat-rated Mercury NZ and consider the stock marginally overvalued at current prices. The outlook remains solid. Fiscal 2024 EBITDA is likely to be flat on last year, as rising electricity prices and increased wind and geothermal output offset lower hydroelectric generation, following record rainfall in fiscal 2023. Further growth in retail prices is likely in coming years as high futures prices are passed through to customers, and generation would lift on completion of wind and geothermal developments. We forecast EBITDA growing at an average annual rate of 4% over the five years to fiscal 2028.