Investment Rating - The report upgrades the investment rating for MCY to Neutral, while maintaining a Buy rating for MEL and GNE, reflecting their higher dividend per share (DPS) growth and attractive valuations [4][31]. Core Insights - The New Zealand electricity retail market is expected to see household electricity prices grow at approximately +5% per annum over the next five years, which is above the Consumer Price Index (CPI) [4][5][11]. - Retail EBITDA margins are projected to gradually improve from -20% in FY25 to +4% by FY30, despite rising wholesale electricity prices and transmission/distribution costs [4][5][20]. - The report highlights that bundling and load management strategies could significantly enhance long-term EBITDA per connection for leading retailers like MCY and CEN, potentially increasing by 60-70% by FY35 [6][21]. Summary by Sections Market Overview - The New Zealand electric utilities sector has outperformed the NZX50 index by +7% year-to-date, with the retail segment comprising about 30% of total demand [7][32]. - The market is currently undervaluing the long-term potential of the electricity retail sector, with expectations of substantial retail EBITDA losses in FY25 estimated at around -$600 million to -$1.5 billion depending on hedging strategies [29][49]. Pricing Dynamics - Historical data indicates that household electricity prices have increased at an average of +3.8% per annum over the last 35 years, with expectations of a return to this growth rate after a period of higher increases [11][62]. - The report anticipates that retail electricity prices will reach historical peaks of +6%/+9%/+7% over the years 2025-2027 before moderating to CPI levels beyond 2032 [62][63]. Operator Performance - MCY and CEN are identified as the operators most likely to benefit from a rational increase in retail prices, with expected retail EBITDA margins of ~5% by FY30 [20][29]. - The report suggests that the retail arms of integrated utilities are generally valued at around 7x EV/EBITDA, with MCY standing out as having the most valuable retail segment [29][31]. Strategic Opportunities - The report emphasizes the importance of bundling and load management as key strategies for retailers to enhance their customer base value and improve profitability [21][104]. - Discussions with industry participants indicate that retailers have historically acted rationally in raising prices during periods of regulatory scrutiny, suggesting resilience in pricing strategies [4][56].