A Record-Breaking Month | Genesis Energy Update

2 December 2020

Global markets were lower overnight (S&P 500 Index -0.4%) but markets ended the month of November with stellar returns post the US election result and promising COVID vaccine news-flow.

The US market (measured by the S&P 500 index) rallied +10.7%, while the Australian market (ASX 200) gained 9.9%, its best month on record. The NZ market (NZX 50) lagged in a relative sense, but was still up +5.8% for the month

Genesis Energy (GNE:NZX / GNE:ASX)
As we touched on yesterday, GNE is undertaking a review of its Kupe oil & gas asset ownership (46% stake) which has come a little sooner than expected. In our view, if GNE can hold its incremental dividend after any sale, a transaction will be viewed positively.

We think a sale would improve balance sheet flexibility and allow GNE to absorb the cash flow shortfall and potentially carry the current dividend, while the strategic reasons for owning Kupe have diminished over time.

The media is reporting Genesis Energy's bankers have wasted no time hitting the phones to pitch – potential buyers include Australia’s Beach Energy as well as NZ Oil and Gas.
The other party expected to at least take a look is Austrian OMV, which acquired Royal Dutch Shell’s NZ upstream interests in December 2018. The review and auction is expected to play out over the next 6 months.  GNE is trading on a valuation discount versus electricity peers and we think the sale of Kupe may help lift its valuation.


Australia & New Zealand Market Movers

The Australian market pulled back on Monday (ASX 200 index -1.3%) but still experienced its best month on record – surging +9.9%. The benchmark-heavy major lenders did most of the heavy lifting on a market value basis, with Commonwealth Bank shares advancing 15% and National Australia Bank shares soaring 25%.

In stock news, Select Harvest shares were down -5% as it said 2020 full year operating earnings sank 39.3% to $57.8 million because of lower global almond pricing and higher water costs, despite a record 23.25-million-tonne almond crop. It's been a tough year for almond grower Select Harvests as COVID-19 and strong US competition drove the price of Aussie almonds to ten-year lows. The start of the 2020/2021 water season has seen better weather conditions and a movement of water prices back towards long-term averages.

The New Zealand market was higher yesterday (NZX 50 Index +1.0%) as Fisher & Paykel Healthcare shares surged, bringing the index’s November gain above 5%. Turnover was much higher than usual to accommodate the semi-annual review of the MSCI equities indices.

It has been an exceptional month for Fletcher Building and Air New Zealand which have climbed 38% and 27% respectively, this November. Meridian Energy climbed 4% on Monday, continuing to benefit from the Tiwai Point aluminium smelter staying open and buoyed by investors buying clean energy exchange traded funds after Joe Biden won the US presidency.

Heartland Group Holdings rose 2.8% after chief executive Jeff Greenslade told the annual shareholders' meeting that net profit for the four months ended October was tracking ahead of expectations. Kathmandu chief executive Xavier Simonet unexpectedly resigned to head up the Australian Trade and Investment Commission. Investors were sad to see him go, pushing the share price down -6%.


3 Things Markets Will be Watching this Week

  1. ​​​​​​​​​​​​​​COVID related news flow, including vaccines are likely to dominate headlines for another week.
  2. US economic data is due at the end of the week – including nonfarm payrolls and the ISM manufacturing survey.
  3. The latest decision from the RBA on its Cash rate target is due Tuesday.


The US market (measured by the S&P 500 index) rallied +10.7%, while the Australian market (ASX 200) gained 9.9%, its best month on record. The NZ market (NZX 50) lagged in a relative sense, but was still up +5.8% for the month

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