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Genesis Energy (ASX:GNE) share price drops 5% today after closing at 52-week high last week

The Genesis Energy share price has dropped almost 5% today, after closing last week’s trading at a 52-week high. Let’s take a look.
The post Genesis Energy (ASX:GNE) share price drops 5% today after closing at 52-week high last week appeared first on The Motley Fool Australia. –

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The Genesis Energy Ltd (ASX: GNE) share price has dropped almost 5% to $3.50 today, after closing last week’s trading at a 52-week high of $3.68.

The Genesis Energy share price is falling today amid a broader fall in ASX energy shares. Shares in Contact Energy Limited (ASX: CEN) fell by 7%, while the Energy Resources of Australia Limited (ASX: ERA) share price also dropped 6.5% today.

Let’s take a look at what’s been driving the Genesis Energy share price in the last 6 months.

Solid FY20 results

The company’s share price has been riding on the back of solid FY20 results, in which it reported net profit after tax (NPAT) of $46 million. This was despite challenging market conditions due to the coronavirus pandemic.

Genesis followed up with another solid update for the first quarter of FY21 in October, when it reported 3.4% increase on its retails sales versus prior corresponding period.

As a result, the Genesis share price has been making grounds in the last 6 months, rising by 30% in that period.

Headwinds ahead

Genesis advised that longer term earnings faced material headwinds as depletion of its Kupe oil and gas field accelerates. Kupe currently contributes about a quarter of group earnings before interest, tax, depreciation, and ammortisation (EBITDA).

Genesis owns a 46% share in the Kupe gas field located in the Taranaki Basin in New Zealand. Kupe provides the company with a reliable supply of gas to its thermal power plants, and underpins its dual-fuel (electricity and gas) offering to retail customers.

In the company’s annual report, Genesis advised that its earnings from Kupe could end within 10-15 years, as resources in the field begin to deplete. As such, there is a material risk to Genenis’ earnings and cash flow over the longer term. To counter this, the company said it will embark on new oil and gas discoveries.

In November, the company announced that it was undergoing a strategic review on Kupe, and an announcement is forthcoming at some point mid-2021. 

Brief take on Genesis Energy

Genesis generates around 17% of New Zealand’s electricity from its thermal and hydro power stations, and commands 26% of the Kiwi retail electricity market.

New Zealand is unique, with 80% of power coming from unsubsidised renewable energy as the country is blessed with good hydrological, geothermal and wind resources – combined with a small population.

The country’s natural blessings could become a double-edged sword for the company, however. According to its annual report, Genesis’s earnings were exposed to the ups and downs in rainfall levels. This is because its hydro-generator provides it with low-cost generation during times when there is sufficient rainfall, and vice versa when the weather is relatively dry.

About the Genesis Energy share price

The Genesis Energy share price has risen by 15% over the last 12 months, and 30% in the last 6 months, as mentioned.

The company commands a market cap of $3.84 billion.

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Motley Fool contributor Eddy Sunarto 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.

The post Genesis Energy (ASX:GNE) share price drops 5% today after closing at 52-week high last week appeared first on The Motley Fool Australia.

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