Mercury (ASX:MCY) share price falls after earnings downgrade

Mercury's new guidance reflects the challenges it's been facing through 2021.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Mercury NZ Ltd (ASX: MCY) shares are down late morning after the company downgraded its guidance for the 2021 financial year. At the time of writing, the Mercury share price is 3.94% lower than yesterday's closing – with shares in the company swapping hands for $6.09.

It's the second time this year the New Zealand electricity supplier has dropped its earnings guidance. Today, it has been reduced by 11.5%.

The company cited dry weather, an outage at its geothermal power station, elevated wholesale prices, and its acquisition of Tilt Renewables Ltd (ASX: TLT) as reasons for the downgrade.

Let's take a closer look at the news that might be weighing on the Mercury share price today.

A woman slumped at her computer in a power outage.

Image source: Getty Images

New guidance

Mercury announced this morning that its expected earnings before interest, tax, depreciation, amortisation, and financial instruments (EBITDAF) has fallen.

The company now expects EBITDAF of $420 million for the 2021 financial year – down from its previous guidance of $520 million.

This is the second time this year that Mercury has dropped its guidance. In February, Mercury downgraded its 2021 financial year guidance from $535 million to $520 million.

Why Mercury's earnings have dropped

According to Mercury, its Kawerau geothermal power station's unplanned outage is weighing on its earnings.

The power station's outage is said to have been caused by a mechanical failure on Monday. It is expected to be out of action for months. Mercury says it will update the market on when the Kawerau power station will be back in operation once it knows more.

Additionally, Mercury stated its EBITDAF has been hindered by Tilt Renewables' higher associated earnings.

Previously, Mercury and AGL Energy Limited's (ASX: AGL) subsidiary, PowAR, were set to acquire Tilt for NZ$7.80 per share. Following the acquisition, Mercury was to operate Tilt's New Zealand-based assets, while PowAR was to take over its Australian-based operations.

In April, following reports a Canadian pension fund had offered Tilt NZ $8.00 per share, Mercury stepped back from the acquisition and PowAR increased its offer to NZ$8.10 per share.

Now, Mercury will buy Tilt's New Zealand-based assets from PowAR once the acquisition is complete. The workaround increased the cost of Mercury's purchase by NZ$27 million.  

Further, dry weather in the Taupo catchment has caused Mercury's full-year hydro generation guidance to fall by 200 gigawatt hours. Mercury now expects to generate 3,600 gigawatt hours of hydro energy this financial year.

Finally, increasing wholesale prices have added to Mercury's woes. The company stated spot prices for the fourth quarter of the 2021 financial year to date are averaging at around $285 per megawatt hour in Auckland.

Mercury share price snapshot

The Mercury share price has not had a great run in 2021, falling 2.87% since the start of the year. However, it has still gained 35.33% since this time last year.

The electricity supplier has a market capitalisation of nearly $8.3 billion, with approximately 1.36 billion shares outstanding.

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Energy Shares

Excited couple celebrating success while looking at smartphone.
Broker Notes

Up 222% in a year, why this ASX energy share is forecast to more than double your money again

A leading broker forecasts more outsized gains to come from this rocketing ASX energy share. But why?

Read more »

Young ASX share investor excitedly throwing hands up in front of savings jar.
Energy Shares

$7,500 invested in New Hope shares 5 weeks ago is now worth…

Strong coal prices lift New Hope shares over a five week period.

Read more »

Image of a fist holding two yellow lightning bolts against a red backdrop.
Energy Shares

Oil slides below US$100 as tensions shift, ASX energy stocks pull back

Oil prices pull back as supply concerns ease.

Read more »

A woman sits on a chair with laptop on her lap and a smile on her face with a graphic image of a climbing jagged arrow tangled around her feet and lifting it comfortably so it is raised against a backdrop of many lightbulbs with one large lightbulb showing a dollar sign.
Energy Shares

This ASX stock is up 2,700% in a year. Here's what's driving the dip today

Sunrise shares slip despite a massive 2,700% surge over past year.

Read more »

A barrel of oil suspended in the air is pouring while a man in a suit stands with a droopy head watching the oil drop out.
Energy Shares

Why is the Woodside share price getting smashed on Tuesday?

Woodside shares are under heavy pressure today. But why?

Read more »

Oil industry worker climbing up metal construction and smiling.
Energy Shares

Can these red hot ASX energy shares keep charging higher?

Is there any upside left in this sector?

Read more »

Worker on a laptop at an oil and gas pipeline.
Share Market News

What would a gas tax mean for ASX energy stocks?

Here's what investors need to know.

Read more »

A Santos oil and gas company employee stands in a field looking at an ipad with an oil rig in the background and grey skies above representing carbon in the atmosphere
Energy Shares

Will ASX oil stocks protect your portfolio from a market crash in 2026?

It might be tempting to buy into oil right now...

Read more »