Mighty River Power’s fourth quarter update released on Monday showed mixed operational performance for the final three months of the financial year but should be good enough to complete a great year for the company.  The full year result to be released in late August will be particularly topical as it will likely be the company’s final result before its public offering.

Weather conditions have been favourable for Mighty River this financial year leading to strong performance.  The Company posted an impressive interim result and upgraded its full year EBITDA guidance to $460m – $470m from $430m – $450m.  The favourable conditions occur as low rainfall levels in the South Island have caused higher wholesale electricity prices as less electricity is produced by the large southern hydro power stations.  This has benefited Mighty River as Lake Taupo received a reasonable level of rainfall meaning their Waikato River hydro power stations sold decent volumes of electricity at high wholesale electricity prices.  For the June 2012 year, Mighty River’s hydro generation declined 1.7% from the previous year while gas generation was up 115.8% and total generation was up 2.7%.

Electricity sales volume increased 12% in the fourth quarter compared to the same period last year due to a 29% increase in sales volume to commercial customers.  For the full year, sales volume increased 5.1% driven by a 13.6% increase in commercial sales.  The sales to residential customers declined 1.6% for the year as Mighty River lost 6,000 customers over the year, taking its total customer numbers to 386,000 from 392,000 at the beginning of the year.

One negative data point from the fourth quarter update is the LWAP/GWAP ratio which increased to 1.13 from 1.09 the preceding quarter.  A LWAP/GWAP ratio above 1 means the power company is selling its generation at a lower price on the wholesale market than what its retail business purchases wholesale electricity.  As this ratio has increased it will negatively influence the operating margin in the final quarter when compared to the first nine months of the year.  This negative effect occurs as the different wholesale electricity prices at different locations around the country were unfavourable for Mighty River during this period.

The expected strong result for the 2012 year will set a challenging goal for the company to improve on in its first year as a listed company.

William Curtayne

Senior Analyst