Who's in for the Mighty River Power float?

[CJ]

Mighty River will probably be the most attractive over a three month horizon once it lists, as it will be priced to succeed. If MRP is a flop on listing, then the subsequent govt listings will face headwinds.

Agree. I will probably sell down CEN, TPW or IFT to get funds to invest.

[macduffy]

The latest Chalkie column on the stuff website makes interesting reading for those interested in the MRP float - or other SOE's for that matter.

[Vaygor1]

if you were to choose for new money mighty river, vector, contact or trust power/ how do you compare?

And that is an excellent question. As a matter of fact that is THE question.

So in simple terms read on for NZ Electricity business 101....

These companies you mention Voltage (very apt name I must say) are not allowed to be in the electricity distribution game. On a national grid level, that is run by Transpower (Gov't owned, not for sale) and on a local level by Electricity Distribution companies like PowerCo who own poles and lines and meters. In VERY simplistic terms, these distributors are not allowed to Generate or Retail (ie Sell to the market) electricity... and visa versa those that generate/retail are not allowed to distribute.
Distributers never own nor sell the electricity. They just charge a fee for transporting it.

Generating involves owning and operating power stations and feeding the national grid and GETTING PAID for doing so.
Retailing involves marketing, getting customers (by promising to deliver electricity at a $/unit volume), reading meters, invoicing, chasing bad debts, and PAYING the Generators for the electricity it has promised to deliver.

To one extent or another, most Generators also Retail. Most Retailers also Generate.

e.g.
Trustpower from their 2013 Annual Report stated that they generated 2330 GW of electricity and sold 2683 GW of electricity. Refer https://www.nzx.com/files/attachments/176917.pdf

This means in the last financial year Trustpower did not produce enough of their own electricity to meet their obligations in supplying their own customers... but they're not that far off. They aren't as exposed as others in having to forward hedge and/or pay the electricity spot price which can skyrocket (and I mean really skyrocket) when our hydro lake levels are low.

So casting aside other areas these business' function in such as Natural Gas, LPG, telecoms (fibre mostly), overseas interests, etc and looking purely at NZ electricity...
...And then casting aside IPO prices, EPS, NTA's, Operating efficiencies, Economies of Scale etc etc so I am writing in VERY simple terms...

The companies with the correct fundamentals to go for are those that can produce (ie generate) enough electricity to feed their own customers.

Why? Because these companies are not exposed to having to buy electricity off the others. They can look after themselves. They are safe.
Conversely those who are able generate more than they retail can make a fortune at times when selling to those who can't.

Based on this SIMPLE criterion, and ignoring everything else and to answer your question voltage:
Contact. No Brainer YES.
MRP. Hmmm Not bad.
Trustpower. Hmmm Not bad.
Vector. No Brainer AVOID.


Vaygor1.

[macduffy]

Yes, Vaygor, Vector is the odd one out in this group and operates in a heavily regulated environment, more perhaps in common with Chorus in that they are both carriers of other parties' products. That doesn't automatically rule Vector out as an investment proposition though and it might have appeal to those looking for steady income with a lower level of risk than the generator/retailers.

As for the relative merits of the latter group, the complexities involved in the various businesses are too hard for me to fathom although I tend to favour those with a good chunk of the cheaper (hydro) generation - questions of water rights excluded meanwhile!

[Vaygor1]

Yes, Vaygor, Vector is the odd one out in this group and operates in a heavily regulated environment, more perhaps in common with Chorus in that they are both carriers of other parties' products. That doesn't automatically rule Vector out as an investment proposition though and it might have appeal to those looking for steady income with a lower level of risk than the generator/retailers.

As for the relative merits of the latter group, the complexities involved in the various businesses are too hard for me to fathom although I tend to favour those with a good chunk of the cheaper (hydro) generation - questions of water rights excluded meanwhile!

Quite right MacDuffy. Vector should definitely not be ruled out.

Recall that Vector bought Australian Gas Light's share of the Natural Gas Corporation.
AGL went down the "Let's Retail" path, went ahead and got mega retail customers, didn't forward hedge, and then the NZ Spot Price for electricity went through the roof.

AGL haemorrhaged and lost 100's of millions (nearly 1/2 a billion?) in a few weeks. NGC was only a subsidiary of AGL and it nearly sent the entire AGL operation under. In this case AGL were idiots for not forward hedging.

I remember at the time thinking 'Where has all that money gone?' and decided the only place that the vast majority could have gone was Contact who had huge generation capacity and by comparison very few customers.

I learn't a huge lesson here, as I didn't have the strength of my convictions to buy buy buy Contact... and then Contact announced. Contact's profit, and (as a result) its shareprice went gangbusters that year, and I missed out on it all despite coming to the right conclusion at the right time.

Vector bought out AGL's share after that. I think AGL had to sell it to survive. Their business (Vector's) involves a lot more than retailing, and the company that it is today learn't a lot from AGL's complete mismanagement. Vector should not be ruled out, just a bit more carefully watched imho.

[Vaygor1]

.... As for the relative merits of the [Generators/retailers], the complexities involved in the various businesses are too hard for me to fathom although I tend to favour those with a good chunk of the cheaper (hydro) generation - questions of water rights excluded meanwhile!

I'm not worried about the Water Rights issue... it's a ludicrous claim.

At what point does the molecule of water, evaporated from the ocean off the Queensland coast (or Perth's coast, or Antarctica's coast, or Indonesia's coast) suddenly become the property of the local Iwi?

The whole thing is such a joke that it beggars belief. Those claiming ownership of this water are literally farting against thunder.

[Vaygor1]

You have a very good point Sparks, especially when a Taniwha can cause the halting & redevelopment of NZ's State Highway One, and play a part in the location of the Ngawha prison in Northland. http://www.kiwianarama.co.nz/taniwha...nsport-policy/...

...Thus allowing a myth to 'have its say' at the expense of NZ becoming the laughing stock of the world.

I find I am unable to express my utter dismay regarding the above to the extent I want to without resorting to swearing.

[binary]

They are all equally capable of being molested by one of the following: the Commerce Commission, Iwi, Labour/Green/Mana governments and weather patterns. The stocks would have to be VERY cheap to be attractive.

Mighty River will probably be the most attractive over a three month horizon once it lists, as it will be priced to succeed. If MRP is a flop on listing, then the subsequent govt listings will face headwinds.

Don't forget being molested by more and more people going off grid as solar etc become cheaper and more efficient. Give it 10-20 years once hydrogen can be safely split from water and these power companies may barely exist.

[digger]

Don't forget being molested by more and more people going off grid as solar etc become cheaper and more efficient. Give it 10-20 years once hydrogen can be safely split from water and these power companies may barely exist.

binary, I had a good laugh about that hydrogen being split from water and then used as a power source. I went to school way back in the 50ths and that was just around the corner then and still is so if that is all MRP has to worry about I would say the future is lookig secure.

[binary]

binary, I had a good laugh about that hydrogen being split from water and then used as a power source. I went to school way back in the 50ths and that was just around the corner then and still is so if that is all MRP has to worry about I would say the future is lookig secure.

From my sources this is not that far from reality. It's already easily done only highly volatile, but techniques for safely storing hydrogen are well on their way to being viable for energy production.