Increasing our Dividend Forecasts on Strong Free Cash Flow Expectations

We upgrade Mighty River Power's dividend forecasts despite the firm reporting a soft start to the financial year as we expect strong free cash flow to be returned to shareholders in the form of special dividends. In the September quarter, total generation increased by 17% on the previous corresponding period to 2,099GWh, driven by a 41% increase in hydro volumes as a result of high inflows into the Waikato catchment. However, good hydroelectricity production from Mighty River and peers put downward pressure on average wholesale electricity prices, which were 19% below the previous corresponding period at NZD 55 per megawatt hour, or MWh, offsetting the increase in generation volume. National electricity demand increased by 2% on previous corresponding period, underpinned by higher usage in urban centres and for milk production. Nevertheless, increased competition and lower customer numbers saw Mighty River's share of retail sales decline from 17% to 15%, contributing to a 6% decline in retail sales volumes.