Capital raise puts Meridian Energy Limited's debt headroom in focus

The turnaround was driven mainly by the absence of last year's fair-value and hedge-related losses, reflected in energy margin rising from $982m to $1.5b. Revenue fell 19.7% to $3.9b even as EBITDAF rose 72% to $1.1b, a divergence that overlays a non-comparable prior-year hedge and fair-value base rather than a clean like-for-like sales trend.

Cash conversion improved to 77.1% of EBITDAF, above the company's historical mean of 63.6% (range 52.1%-73.7%), while net debt/EBITDA fell to 1.36x from 2.37x.

The PBT and NPAT recovery is real, but the prior-year base was itself distorted by hedge and fair-value losses, so the +125.8%/+128.8% growth rates describe a rebound from an unusual trough rather than a steady operating trend; the 72% rise in EBITDAF to $1.1b is the cleaner operating read. This matters because extrapolating the percentage growth rates risks overstating forward momentum.

Cash conversion of 77.1% sits above the historical baseline of 63.6% and near the top of the 52.1%-73.7% range, supported by a $54.0m fall in trade debtors and debtor days easing to 33.1 from 30.6. This is favourable for near-term liquidity, but a conversion level above the recent range warrants checking whether the working-capital release repeats.

Leverage improved, with net debt/EBITDA down to 1.36x from 2.37x and equity up 11.6% to $10b, even as gross borrowings rose 23.7% to $1.9b. The dividend payout ratio against NPAT was 459.2%, meaning the distribution is funded well beyond statutory earnings and instead against free cash flow, where the company discloses an 83% payout ratio.

No explicit dividend-growth target was supplied beyond the disclosed 83% free-cash-flow-based payout ratio, so this result does not validate an ongoing step-change in earnings power.

The half-year shape also warrants caution: HY26 NPAT of $227.0m implies a second-half NPAT of roughly -$97.0m, meaning most of the year's profit was booked in the first half. Whether this reflects hydrology and hedge timing or a genuine second-half deterioration is not resolved by the release.

Free cash flow of $721.0m against NPAT of $130.0m produced conversion of 554.6%, an unusually high ratio that reflects the depressed prior-year profit base as much as current cash strength.

Capex rose 35.2% to $261.0m, taking capex intensity to 6.7% of revenue from 4.0%, so the free-cash-flow cushion is narrowing even before dividend commitments are considered. The 459.2% NPAT payout ratio underscores that the dividend depends on continued operating cash generation rather than reported statutory profit.

This briefing cannot assess whether the hedge and fair-value effects behind the FY25 loss and FY26 recovery will recur in future periods, as the release does not reconcile these items in sufficient detail.