Solid Energy, the state-owned coal miner that’s on the government’s list to be sold, may lift profit by about 96 percent over the next five years, according to an assessment by brokerage Forsyth Barr.
Solid Energy is valued at $1.6 billion, or $25.50 per existing share, once the 8 percent discount to the discounted cash flow valuation that shares on the NZX typically trade at is applied, says analyst Guy Hallwright in a report dated Nov. 9 and posted on the Crown Ownership Monitoring Unit website late last month.
The bulk of the value, $1.2 billion, reflects the coal miner’s existing operations and the rest is for new energy projects, which “have the potential to significantly increase the value of the company,” he said.
The government is preparing to sell down its stakes to around 50 percent in Solid Energy at $1.69 billion, Genesis Energy, Meridian Energy and Mighty River Power in the next few years, with the latter company likely to be first on the block. The sales would gross $6.8 billion, based on brokerage valuations of the companies at a combined $13.61 billion.
In addition, selling down its stake in Air New Zealand to about 50 percent from 75 percent would net the government some $220 million based on its current price.
Hallwright forecasts a 26 percent jump in sales for the year ending June 30, lifting profit by 12 percent to $103.4 million. Growth would be on the back of sales volumes expected to rise to 4.8 million tonnes from 4.1 million tonnes, partly reflecting previous earthquake-related port disruptions at Lyttelton.
Sales are forecast to rise to $1.16 billion and profit to $170.9 million by 2016, with a growing but still minor contribution from wood pellets, biodiesel and briquettes. While sales would gain 96 percent by 2016, coal production costs are forecast to grow a more sedate 36 percent.
The dividend payout ratio is expected to sink to 50 percent by 2016 from 58 percent now, though actual dividends paid would climb to $83.5 million from $20 million, the report says.