Mel, gne, mrp?

[MPC]

At some stage soon I am going to have to sell down some of my shareholdings to buy a house. I have read the separate threads for each of the above shares but would like peoples opinions about which of these would be best to sell and at what target price over the next few months.
I know some will be of the opinion they are worth holding because of dividend yield but I prefer to reduce debt at this stage. Basically what do you think are the best long term hold?
Appreciate all thoughts.
Cheers,
MPC

[Crackity]

Hi MPC - throw a bit more info up maybe? How much difference is selling some or all of your shares going to make to the mortgage amount borrowed from a bank compared to the house price? Best wishes :)

[MPC]

I have a debt level I am comfortable with so will be selling some shares, question is which ones.
Cheers,
MPC

[fish]

I have a debt level I am comfortable with so will be selling some shares, question is which ones.
Cheers,
MPC

So why do you want to sell ?
I have been doing just the opposite.
Whole sale power prices are going up-El Nino will according to predictions start to bite.
Interest rates are low and predicted to fall further next month
So we both have the same research interest but with different aims
I margin lend so at times like this when returns are well above interest rates i buy-and have bought a lot of CEN and and a few GNE over the past few months .
My logic is that cen should do best in a dry year as they have the capability to generate more than they are contracted to supply.
Not so sure about GNE as they supply more than they generate and Huntly could be curtailed if the waikato river gets to warm-anyone know more about this?
Meridian and mrp could have problems if it gets very dry-as could trustpower.

[Bobdn]

MPC, can't offer you specific advice and my own investments in this segment have been less than stellar :( One factor I keep in the back of my mind is Labour's "NZ Power" policy. I see, according to the attached article, that NZ Power is looking less likely in the event of a Labour-led government. Because of this, I'm probably going to be a long term holder of my Genesis shares. It's going to form a chunk of my retirement income I think - bank deposits certainly don't cut it these days.

http://www.stuff.co.nz/business/73783894/labour-leader-drops-partys-controversial-policy

[Hoop]

Hi MPC
There's no wright:) or wrong answer to your question.

I'm old enough to remember my Grandparents and Parents telling me never to "borrow to buy", always keep your debts as low as possible... save up first and then buy....they recited back to their day sitting on beer crates until they saved enough money to buy a lounge suite....basically borrowing money back then to buy something was considered foolish..They also remarked that one values their assets and looks after them a lot better when bought with one's hard earned savings... and.. they lasted longer....and keeping to this methodology... later on in life after you have bought everything you need, the money you earn then comes to you and not lost to the bank or loan company

Hearing my parents financial wisdom made a lot of sense... but being young and "I know better", I bought houses and flats and borrowed to the max back in the late 70's and 80's as many others did (boom time)..I had the parental finger wagging at me saying the property market boom is a "flash in the pan" it will bust quickly and I will lose all my money and be in debt for the rest of my life.. ..Luckily for me after the Oil disruption, and the high inflation that followed help depreciate my debt value and my differing (from my parents) financial behaviour paid off big time ..

Inflation is now low again but currency depreciation to keep inflation under control followed on which relates to the same thing..debt depreciation (smoke and mirrors..eh?)..so this generation seeing the past "borrow to buy" success is keeping up the financial fashion of borrowing to the hilt.

So what changed ..why was my ancestral advice/wisdom to "save to buy" far away from being the best option?

The chart below shows the reason...up until 1930 money didn't depreciate (often appreciated) and generational spending behaviour became ingrained...That old advice/wisdom was very wise back in those days......

Now!!...Us old fellas have lived long enough to know that most things come back into fashion (or to haunt us) and over the decades we have seen a lot of repeated behaviour.....So the question asked.. Is all of this cyclical?..and "If it is a cycle, when is it about to turn..now? next Decade?..next Century?

If it is cyclical, then it's possible our grandparents and parents of today wisdom to "borrow to buy" could be the wrong advice....just as it was back in my day.



http://advisorperspectives.com/dshort/charts/inflation/inflation-purchasing-power-of-dollar-since-1871-log-scale.gif

Disc: I'm debt free

[fish]

good post Hoop.
How times change.
I had it instilled in me NEVER borrow to buy non-income producing assets.
A way to make your mortgage tax deductable if you own income producing assets such as shares-
Sell shares buy house.
Take out a mortgage on the house specifically to buy shares and make sure you document it all and buy the shares
Hence you have borrowed money to specifically buy shares=tax deductable

[fish]

MPC, can't offer you specific advice and my own investments in this segment have been less than stellar :( One factor I keep in the back of my mind is Labour's "NZ Power" policy. I see, according to the attached article, that NZ Power is looking less likely in the event of a Labour-led government. Because of this, I'm probably going to be a long term holder of my Genesis shares. It's going to form a chunk of my retirement income I think - bank deposits certainly don't cut it these days.

http://www.stuff.co.nz/business/73783894/labour-leader-drops-partys-controversial-policy

My main concern about gne is that what happens in a dry year.They have 26% of the market and only generate 14% of the power according to wikipaedia.
They have abundant gas from Kupe to step up thermal generation but will they be able to generate as much as they need in a dry year if the waikato is too warm?

[Baa_Baa]

@MPC if you don't have to sell all of your energy shares, how about selling an equal proportion of each of them. From all of the excellent discussion on the energy company threads here, I doubt whether you will find a consensus answer to which one or other company to sell or hold for the long term. Selling a portion of each will keep you in the sector and diversified across the companies. Just a thought.

[MPC]

Excellent answers and thoughts, many thanks. I would love to keep all of them, might still, my wife doesn't like the idea of borrowing more money for the house and also having shares, she sees it black and white as borrowing to buy shares and doesn't like the risk.
Baa Baa I think I will sell of part of each, I see all of them as being good in a long term portfolio which is why I originally asked the question. I don't want to sell any of my Heartland or Summerset shares either.
Funny how the selling is much harder than the buying even when you know you are taking a profit, luckily I am in a situation where I aren't losing either way, building my own house well under market value (not Auckland so realistic value).
Cheers,
MPC

[Snoopy]

At some stage soon I am going to have to sell down some of my shareholdings to buy a house. I have read the separate threads for each of the above shares but would like peoples opinions about which of these would be best to sell and at what target price over the next few months.
I know some will be of the opinion they are worth holding because of dividend yield but I prefer to reduce debt at this stage. Basically what do you think are the best long term hold?
Appreciate all thoughts.
Cheers,
MPC

Ok, I'll stick my neck out. MRP is the best long term hold of these three. This is because:

1/ They have the largest geothermal power station portfolio, which is great to offset the Waikato river hydro dam collection.
2/ The have the closest renewable generation portfolio to the country's largest market: Auckland.

The risk is that in a dry year (like this coming one?) the Waikato will not provide the amount of hydro power required. But history has shown it is unlikely there will be a dry year, for power generation purposes, in both the NI and SI at the same time. This is because the SI systems are more snowmelt fed, rathe rthan rain fed. That means that in a NI dry year, MRP should be able to buy power off Meridian at reasonable rates to close any generator-customer gap.

GNE is not like the others because of their interest in Kupe oil. The Kupe field is shortly to be 'upgraded' in terms of recoverable reserves. But until we know what the new upgraded reserve profile looks like, it is hard to value the company as a whole. Before the Kupe upgrade I think GNE was looking expensive. But perhaps not now? Hard to know. I do expect the GNE dividend stream to reduce over time as Kupe winds down, but I don't expect reductions in dividends to any meaningful extent from MRP and MEL.

And MEL? NZs largest power producer. They may benefit from some wholesale transmission price reallocation. A good investment but IMO longer term, unlikely to outperform MRP.

SNOOPY

discl: hold GNE and MRP (and CEN that you didn't mention)

[skid]

Excellent answers and thoughts, many thanks. I would love to keep all of them, might still, my wife doesn't like the idea of borrowing more money for the house and also having shares, she sees it black and white as borrowing to buy shares and doesn't like the risk.
Baa Baa I think I will sell of part of each, I see all of them as being good in a long term portfolio which is why I originally asked the question. I don't want to sell any of my Heartland or Summerset shares either.
Funny how the selling is much harder than the buying even when you know you are taking a profit, luckily I am in a situation where I aren't losing either way, building my own house well under market value (not Auckland so realistic value).
Cheers,
MPC

Selling is alot harder than buying-even when you are locking in a profit (or conversely minimizing a loss) There are many who have not got that realization and think just the opposite.

Keep in mind ,if we do get into a deflationary cycle (which could happen) debt is much more difficult to repay

I ,like Hoop,got lucky with property,but unlike him,i kept more equity and didnt borrow to the hilt--In the end as things played out he did probably better (I could maybe have an additional house If i had borrowed more)but if things had gotten ugly it would have been different--I am debt free,like him. In todays economic climate of fiscal experimentation its a comfort to know Im there--I believe in the ole saying of reduce your mortgage debt first--I believe you are doing the right thing--Even in the States the Fed IS going to raise rates--Its just a matter of when--no one knows how the (spoiled?)market will react to having the easy money cut off--Im not a young Buck anymore so perhaps im just a bit more cautious these days.---You decision obviously depends on alot of things,incl keeping the missus happy.

[minimoke]

Sorry MPC, dont have a specific answer. But one tool I use is my Debt to Asset ratio. I have promised to go to my grave with debt so debt doesn't scare me. But I like to see my assets grow relative to debt. So perhaps what you could do is look at what capital gain you expect from your house. Then look at the expected capital gain on your shares. Which looks better? (Look with realistic conservative eyes - not through rose tinted glasses!)

The big issue with debt nowadays is how you service it. Not necessarily now ( because its so damn cheap - back in the good old days I've paid 25% interest) but in a few years when interest rates will invariably turn. Having some relatively liquid assets (like shares) might be a useful thing to have to bring that debt down when ability to pay is stretched. Be prepared for a 50% increase in debt serving - its not hard to see rates move from 5% to 7.5%

The other thing to look at is cost of mortgage debt servicing relative to net income derived from shares.

Disc - I'm a lazy holder of CEN. Currently worth 20% more than I paid for it with a 14% dividend yield.

[malus]

Good on you MPC for working your way through a strategy that suits your near investment plans... lots of good thoughts here to your original question... I think you're on the right track with your comment in post#10... as we all know hindsight is great when evaluating investment decisions... picking how any one of the gentailers might fare going forward is easier if you know what challenges each individual one may face and how they will go about dealing with the fall out.

On price... the NZX is at a record... will it go higher!! If you are thinking of liquidating some shares that will need to be given consideration.

All the best the house.

discl: Long term holder MEL, MRP and a small holding of GNE

[tim23]

Hi MPC - sell the lot, increase mortgage payments and you get guarantee say 7% net return(assuming mortgage rate of 5%) , keep your KiwiSaver running, pay the mortgage debt off asap, easy!

[axe]

Try here :) http://www.afa.org.nz/

[trader_jackson]

If you didn't consider other factors I would recommend selling GNE.

In short:
I think capital and dividend growth long term will be hardest for GNE, while the one I would definitely be keeping is MRP. There geothermal plants are amazing and I believe they can consistently increase their dividend. Not really sure on MEL.

(Disclosure: I own shares in both GNE and MRP and was about to sell the GNE ones at $2.20, then they announced an earnings downgrade around the same time of the bonus share issue, which was the only reason why I didn't sell at $2.20+ earlier!)

[skid]

If you didn't consider other factors I would recommend selling GNE.

In short:
I think capital and dividend growth long term will be hardest for GNE, while the one I would definitely be keeping is MRP. There geothermal plants are amazing and I believe they can consistently increase their dividend. Not really sure on MEL.

(Disclosure: I own shares in both GNE and MRP and was about to sell the GNE ones at $2.20, then they announced an earnings downgrade around the same time of the bonus share issue, which was the only reason why I didn't sell at $2.20+ earlier!)

It was always going to be hard for the SP once the bonus shares came on line--sometimes those inevitable drops start a momentum--one of those things--Sold ours @1.99 when it looked to be losing favour.
you can get pretty detailed info on which areas are most affected by El Ninio It tends to make dry-drier and wet -wetter--Its never a sure thing (like shares) but they report that the warming currents are very strong this time around so its pretty likely.

[fish]

If you didn't consider other factors I would recommend selling GNE.

In short:
I think capital and dividend growth long term will be hardest for GNE, while the one I would definitely be keeping is MRP. There geothermal plants are amazing and I believe they can consistently increase their dividend. Not really sure on MEL.

(Disclosure: I own shares in both GNE and MRP and was about to sell the GNE ones at $2.20, then they announced an earnings downgrade around the same time of the bonus share issue, which was the only reason why I didn't sell at $2.20+ earlier!)

I tend to disagree
GNE are increasing their customer numbers and the average wholesale price recently has increased by around 50% compared to the last quarter.
They are out of the coal contract and now a big upgrade on kupe gas.
The share price hasnt yet reflected this.
I am holding expecting the sp and generous dividend to increase.
I cannot work out what a dry summer will mean for GNE-are they capable of increasing thermal generation to take advantage of high wholesale prices?
Can Jantar enlighten me ?

[MPC]

Good discussion and I think it highlights my problem.
Debt to asset ratio was brought up and this is an important factor in investing, how much do you want to borrow and at what debt levels, depends on your risk comfort level. I am quite conservative, slow path to wealth but still happy to have debt equal to asset value, especially now with low interest rates.
I think I will try to keep these shares for the mid term and if they are making 5% net then I am ahead. Again, I don't have a bad problem, just an interesting question of debt and investment allocation.
Appreciate all input,
Cheers,
MPC

[Jantar]

...
Can Jantar enlighten me ?
I need to be very careful here so as not to be accused of insider trading. I therefore will not even try and answer the OP's question as to which one to hold.
If Central North island temperatures get too high then Huntly may be forced to reduce generation, and so may CEN at Wairakei.
There are temperature limits on the Waikato river, both in terms of maximum temperature and increase in temperature from above the station to below it. These limits affect the Rankine units at Huntly more than the CCGT.

If wholesale prices do climb, then all the 5 main gentailers should be OK. It is the smaller retail only companies that could be in difficulty.

[fish]

Good answer and appreciated thanks Jantar

[Beagle]

GNE have the highest yield and are forecasting an increase on FY15's 16 cps. Even with my base case 2/3'rds long term imputation credits they are on a gross yield of nearly 10.5% at $1.90.
16.2 / 1 - (.28 x 2/3) = 19.916 / 1.90 = 10.48%

This morning I see Trust bank have lowered their special 2 year mortgage to only 4.39% and you still get a free new Samsung G6 smartphone. You get a positive net yield of 6.09% Hmmmm

Disc Hold some GNE as a dividend yield stock and none of the other gentailiers. I will say this. Whatever strategy you invoke, be sure its one you and your partner both agree on as its far better to be both signing off the same hymn sheet.

[limmy]

If you hold all the above plus CEN then it's a sure way to benefit from the energy sector.

[GTM 3442]

If you hold all the above plus CEN then it's a sure way to benefit from the energy sector.

My sentiments exactly. There's always going to be an electricity market, and I believe the market as a whole is going to make money.

The various companies within the market will each make losses or profits in an everchanging mixture. One year company A will make heaps, the next year it will make a loss. So I have bought the market. Each year, I will lose as much as the market as a whole.

If I needed the money, I would get out of the electricity market, rather than try to figure out which companies to dump.