Meridian Energy's Weak Financials: A Looming Share Price Correction?

Meridian Energy Limited (NZSE:MEL) has been grappling with weak financials in recent times, raising concerns about its share price. The company's net profit after tax (NPAT) for the 2021 financial year was NZ$177 million, a significant decrease from the NZ$314 million reported in the previous year. This decline can be attributed to lower hydro generation and higher wholesale electricity prices, which negatively impacted the company's earnings. Additionally, Meridian's earnings per share (EPS) for the year were NZ$0.07, down from NZ$0.15 in the previous year. The company's revenue also decreased to NZ$1.2 billion from NZ$1.4 billion in the previous year. These weak financials may indicate that the market has overestimated the company's share price, and a correction could be on the horizon.

Meridian's financial performance has been volatile due to the nature of the energy industry, and its long-term prospects may still be positive. However, the company's recent financials have raised concerns about its share price. The company's net profit after tax (NPAT) for the 2021 financial year was NZ$177 million, a significant decrease from the NZ$314 million reported in the previous year. This decline can be attributed to lower hydro generation and higher wholesale electricity prices, which negatively impacted the company's earnings. Additionally, Meridian's earnings per share (EPS) for the year were NZ$0.07, down from NZ$0.15 in the previous year. The company's revenue also decreased to NZ$1.2 billion from NZ$1.4 billion in the previous year. These weak financials may indicate that the market has overestimated the company's share price, and a correction could be on the horizon.

Meridian's financial performance has been declining due to a combination of factors, including lower hydro generation, increased input costs, and regulatory changes. The company's reliance on hydro generation has made it vulnerable to dry weather conditions, which have led to reduced power output and increased reliance on more expensive thermal generation. Additionally, input costs for fuels and other raw materials have risen, further impacting the company's profitability. Regulatory changes, such as the introduction of the Emissions Trading Scheme, have also added to the company's costs. To address these issues, Meridian could diversify its generation portfolio to reduce its reliance on hydro generation, invest in renewable sources, and improve its operational efficiency to reduce input costs. The company could also lobby for regulatory changes that would reduce the impact of the Emissions Trading Scheme on its costs.

Meridian's earnings and revenue growth rates have been sluggish compared to industry peers and market expectations. In the past year, MEL's earnings per share (EPS) growth rate was -10.5%, while the industry average was 12.3%. Similarly, MEL's revenue growth rate was 2.1%, compared to the industry average of 10.2%. The company's weak financials may indicate that the market has overestimated its growth potential, and a correction in its share price could be imminent.



Meridian's debt levels have risen, and its financial leverage has increased, which could indicate a potential correction in the share price. The company's debt-to-equity ratio has increased from 0.45 in 2019 to 0.67 in 2021, while its interest coverage ratio has decreased from 5.27 to 3.45 in the same period. This suggests that the company may be struggling to service its debt obligations, which could negatively impact its share price performance. Additionally, the company's return on assets (ROA) and return on equity (ROE) have both decreased, indicating a decline in profitability. This could further contribute to a correction in the share price.

Meridian's dividend payouts and yield have been relatively stable over the past few years, with a 5-year average dividend yield of around 4.5%. However, the company's dividend payouts have been lower than industry peers and market expectations. In the past year, MEL's dividend yield was 3.8%, compared to the industry average of 5.5% and market expectations of 4.5%. This could indicate that the company's weak financials may be impacting its ability to maintain its dividend payouts at the same level as its peers.

In conclusion, Meridian Energy Limited's weak financials have raised concerns about its share price. The company's declining earnings, revenue, and growth rates, as well as its increasing debt levels and decreasing profitability, could indicate that the market has overestimated its share price. To address these issues, Meridian could diversify its generation portfolio, invest in renewable sources, and improve its operational efficiency. The company could also lobby for regulatory changes that would reduce the impact of the Emissions Trading Scheme on its costs. Investors should closely monitor Meridian's financial performance and consider the potential for a share price correction.