Mighty River Power (MRP) reported an underlying profit of $162.7m for the 2012 financial year which was marginally ahead of last year’s $162.2m.  EBITDAF came in at $461m which is at the lower end of the $460m to $475m guidance although this guidance was upgraded during the year from the original $430m to $450m. 

The company will pay a $119.8 million dividend to the Crown compared with $110.4 million last year.

The result shows that MRP is executing on its strategy and capitalising on favourable weather conditions.

So how does weather affect earnings?  The pricing of New Zealand’s wholesale electricity is driven by the generation of our large hydro power stations and the level of water storage in the lakes.  When there is little rainfall prices are higher and when there is a lot of rainfall prices are lower.  This year, the South Island received one of its lowest rainfalls on record causing higher than normal wholesale electricity prices as the large South Island hydro stations produced less electricity.  However the Waikato received average rainfall levels meaning MRP could run its Waikato River power stations close to normal levels and receive higher pricing for this generation.

The company will be hoping it can continue to benefit from high wholesale prices – while maintaining average or above average production – after its stock exchange listing.

Based on Contact Energy’s sharemarket valuation Mighty River Power would be valued around $3.1 billion compared with The Treasury’s $3.7 billion valuation. The Treasury’s valuation looks extremely stretched in view of the Maori water claims, Rio Tinto’s threat to close its Tawai Point aluminium smelter and the country’s flat electricity demand.

William Curtayne – Senior Analyst

EBITDAF is earnings before interest, taxation, depreciation, amortisation, financial instruments, impairments and equity accounted earnings.