MEL - Meridian Energy

[MrAT]

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11125424

Meridian Energy's listing date has been announced. Who is interested? :)

And if anyone is wondering, here is the Gov website where you can register your interest.
https://www.meridianshares.govt.nz/

[fish]

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11125424

Meridian Energy's listing date has been announced. Who is interested? :)

Thanks for the link .
I have already registered my interest on line-what a frustrating form to complete-managed to get the 2 word identification code after numerous attempts

[JAYAY]

Does anyone have any thoughts on whether Cunliffe would proceed with Greens/Labour hare brained scheme to set up power buying agency?

[iceman]

I heard him talk about it on radio last week so sounds like he will continue with that policy !

[Ekrub]

No more "hairbrained" than the systems Pharmac or Fonterra use, so good on the Labour/Greens Opposition for doing something about delivering cheaper power to the people. If that discombobulates the government's asset sales programme.....tough!

[CJ]

There doesn't appear to be any benefit in going though a broker, in fact probably a disincentive as you may be scaled more:
https://d2ikaws505454x.cloudfront.net/gso/resources27a/pdf/Meridian%20Share%20Offer%20-%20Next%20steps.pdf

[777]

No more "hairbrained" than the systems Pharmac or Fonterra use, so good on the Labour/Greens Opposition for doing something about delivering cheaper power to the people. If that discombobulates the government's asset sales programme.....tough!

Partial sale Burke.

[peat]

There doesn't appear to be any benefit in going though a broker, in fact probably a disincentive as you may be scaled more:
https://d2ikaws505454x.cloudfront.net/gso/resources27a/pdf/Meridian%20Share%20Offer%20-%20Next%20steps.pdf


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[born2invest]

All the incentives just reek of desperation. If it was such a good deal, they wouldn't need to throw these in.

I never buy a company unless it has released 2 annual reports since listing on the share market. I don't intend to start now.

[macduffy]

I don't think the proposed incentives are necessarily a reflection on Meridian the company but rather they indicate the govt's determination to make sure that the partial float is a success. I will withhold a view on the merits of Meridian as an investment until there are some hard numbers available.

[CJ]

I don't think the proposed incentives are necessarily a reflection on Meridian the company but rather they indicate the govt's determination to make sure that the partial float is a success. I will withhold a view on the merits of Meridian as an investment until there are some hard numbers available.agree, it is a mechanism to allow smaller NZ investors to buy more - like me ( say $6k now, $4k later). They could easily sell more than 15% to overseas investors.

[blackcap]

The thing is, offering it in installment receipts is not even a "lolly scramble". You the investor are "borrowing" the 40% later money at an implied interest rate anyway. So there is no real free money in this issue.
That said I may get into it as a stag as I see the govt maybe giving greater incentives to "mom and pops" than they did last time or at least make the price more firm before you apply. Will wait to see the full details first. But don't get fooled by high yeilds and paying later. That is just a facade to sell this thing easier.

[Wolf]

I'm probably going to stag it. Not interested in holding it long term.

[PartyPooper]

As a rookie investor, getting burned by MRP early on was not fun at all. I'll stay well clear of Meridian until I know the price. Even then I think i'll wait till it goes live or look into it after the next election.

[MAC]

As a rookie investor, getting burned by MRP early on was not fun at all. I'll stay well clear of Meridian until I know the price. Even then I think i'll wait till it goes live or look into it after the next election.

Welcome to the forum PartyPooper.

That's a wise move, in this instance if you are unsure the best thing to do is to do nothing.

Meridian have a slightly different business model from MRP and CEL, they inherited the 'jewel in the crown' assets from ECNZ, very big well depreciated south island hydro cash cow plant.

But, the risks are also a little different, Meridian are more prone to dry year events and more prone to low wind years then their competitors.

Because of this it is probable that Meridian over time will be a little more volatile, as far as power companies go, and there may well be a better entry point to buy in during a future dry year event.

[BIRMANBOY]

One of the unique things that Meridian does offer is an investment in a "clean green renewable energy". This alone might be a reason for many investors to get involved, if not for business/investment but for the appeal of supporting green business. Initially may not have an impact but globally there is a lot of goodwill for these types in investments so I could see large overseas funds getting in further down the track.

[MAC]

One of the unique things that Meridian does offer is an investment in a "clean green renewable energy". This alone might be a reason for many investors to get involved, if not for business/investment but for the appeal of supporting green business. Initially may not have an impact but globally there is a lot of goodwill for these types in investments so I could see large overseas funds getting in further down the track.

I often smile at the Meridian TV advertisements knowing that they sell greenness because they don't "own" any thermal plant. They are actually quite enjoyable ads though.

However, the fact that Meridian "contract" heavily to Genesis Energy for Huntly coal fired generation as thermal backup doesn't make them anymore green to me!

[BIRMANBOY]

Reality is for accountants...perception is for everyone else.
I often smile at the Meridian TV advertisements knowing that they sell greenness because they don't "own" any thermal plant. They are actually quite enjoyable ads though.

However, the fact that Meridian "contract" heavily to Genesis Energy for Huntly coal fired generation as thermal backup doesn't make them anymore green to me!

[robbo24]

$1.60-$1.80, I hear...

[iceman]

$1.60-$1.80, I hear...

$ 1.50 - $ 1.82 reported on Radio Live news and 10% dividend for the first year on the 60% paid in the initial installment.

[robbo24]

$ 1.50 - $ 1.82 reported on Radio Live news and 10% dividend for the first year on the 60% paid in the initial installment.

http://www.nbr.co.nz/article/meridian-share-float-150-180-price-range-rh-146142


The first, Mighty River Power, was held earlier this year and the share price of $2.35 has not held, with prices dropping well below that level since the float.

Lol... It was $2.50, not $2.35... Silly NBR...

[Joshuatree]

From craigs just now
$1 now
price set between $1.50 - $1.80
But for us capped at 60c ie $1.60
D/Y 13% on partly paids
9% on fully paid

[CJ]

From craigs just now
$1 now
price set between $1.50 - $1.80
But for us capped at 60c ie $1.60
D/Y 13% on partly paids
9% on fully paidFor some silly reason, I though the price cap would relate to the first payment, not the second - its going to make their admin harder doing it this way. It could have been a staggers dream though.

So now we have to try and figure out what the institutional price will be to determine if there is any value in the price cap.

[blakecb]

From craigs just now
$1 now
price set between $1.50 - $1.80
But for us capped at 60c ie $1.60
D/Y 13% on partly paids
9% on fully paid

Flip they are giving them away eh. If National get in again, these shares will be a little gold mine. If they don't, they won't. We have seen what political uncertainty can do to a dividend yield stock like Chorus....so they had to make it pretty sweet to get investors in....and they have. Although Chorus still sits under a cloud while offering around a 12% gross dividend yield...that's what it takes to keep the price from bombing when uncertainty is around. Maybe National observed that is the dividend yield required when faced with such uncertainty and obviously want to keep the price up until after the next Election.

[p2r]

Will there be imputation credits?

[macduffy]

Will there be imputation credits?

They "expect" partial imputation in the range of 40-75% of the corporate tax rate. Forecast yields assume 72% of corp tax rate for 2014 and 73% for 2015.

[Joshuatree]

nzx.com/meridian-research#

will have research once the retail offer has opened

Edison

woodward partners

Also first Nz capital and morningstar websites too.

[RRR]

Read the document - I will be buying it and holding it long term!

[troyvdh]

Big picture here...(I have folk who do not have a clue but do ask the question)...given what happened to MRP...and are consequently blah blah....me thinks its probably more good than bad....

again ...I believe the share price is TOTALLY irrelavent....i.e. an asset worth $10....ask investors to buy 50 %....then 50 cents....ask blah for 20 % 20 cents...same deal...am I wrong here...surely this is 101 stuff....cheers

please tell me if Im wrong

[peat]

wow looks too good to be true.


and it is.
paying out 1.5 x earnings in dividend to provide that yield.

[fungus pudding]

Big picture here...(I have folk who do not have a clue but do ask the question)...given what happened to MRP...and are consequently blah blah....me thinks its probably more good than bad....

again ...I believe the share price is TOTALLY irrelavent....i.e. an asset worth $10....ask investors to buy 50 %....then 50 cents....ask blah for 20 % 20 cents...same deal...am I wrong here...surely this is 101 stuff....cheers

please tell me if Im wrong


You're not making your question clear, but I think I get the message. The share price is indeed irrelevant. It's just the value being sold divided by number of shares issued, which is simply a marketing decision of the issuer. e.g. they could offer twice the number of shares at 50 cents with a further 30 cents down the track. Or half the number at twice the price. Having said it's irrelevant, there's perhaps a psychological effect on the marketing. A little like selling a car for $9,999 rather than $10,005 might have. You may have observed companies at times splitting their shares, which simply means every holding doubles in number and therefore should halve in value. They do it to put more shares out and improve liquidity - so they say - but often a share split sees the shares go to a bit more than half the value. The moral of that story is 'There's naught so queer as folk!' :p

[CJ]

100% correct the share price is irrelavent unless you dont know what you are doing.
I was having dinner with some friends last night and they were thinking of purchasing some meridian shares because they were going to be $1 cheaper than what MRP listed for.

Even the shareholders association guy on the news last night made it sound like it was cheaper than MRP because of the share price

[fungus pudding]

Even the shareholders association guy on the news last night made it sound like it was cheaper than MRP because of the share price

I heard Pam Corkery on radio last night scoffing at the share price with remarks like 'a dollar - is that all they can get for them?', as though a dollar meant a share is worthless. She simply has no concept of how share values are formed. To think she was an MP, voting on billion dollar decisions with public money is frightening.

[percy]

I heard Pam Corkery on radio last night scoffing at the share price with remarks like 'a dollar - is that all they can get for them?', as though a dollar meant a share is worthless. She simply has no concept of how share values are formed. To think she was an MP, voting on billion dollar decisions with public money is frightening.

Unfortunately she is not alone.
Very few MPs have any commercial sense,and even fewer have had any business experience.

[Master98]

wow looks too good to be true.


and it is.
paying out 1.5 x earnings in dividend to provide that yield.

The question is how long this dividend policy can last,MRP pay just over 100% earnings in dividend is more reality.

[CJ]

The question is how long this dividend policy can last,MRP pay just over 100% earnings in dividend is more reality.profit includes non cash items - mainly depreciation. Maintenance is normally less than depn and they won't be build any new plants in a while so it's probably good for 10 years?

[troyvdh]

dear fungus....you indeed have a very good point...it is trully frightening....its my belief ..and has always been that ...the vast majority of NZ ers are quite financially illiterate....as I say to my mates....kiwis are fantastic/brilliant at working/making for the dollar.....but just cant keep the bloody stuff...keeping the stuff requires a different mind set/discipline quite honestly ...it drives me nuts at times ...cheers...

[CJ]

Anyone crunched back to see if M has been skimping on maintenance to make the books look better (but will incur addition expenditures once the float is away)?still reading but they have just finished refurbing their two main hydro stations - pg34 (just a quote, no detail)

Refer pg 86 for engineering report

[MAC]

Meridian revenues are more subject to weather dependency than its competitors.

Hydrologic Inflows have improved over the last few weeks which will positively assist the IPO and initial market reaction. Conversely, it may well mean that the Meridian SP will kick off and stabilise over the next few months toward the top of what we may anticipate to be a long term (years) weather dependent trading range.

http://www.electricityinfo.co.nz/comitFta/ftaPage.hydrology

I’m still researching and haven’t yet made a decision on Meridian just yet, but there may well be better entry points for Meridian during dryer events. The dividend play looks fine for those who chase income though and any cyclicality may not be an issue for some.

[CJ]

but there may well be better entry points for Meridian during dryer events. Depends what the second installment price is if you aren't subject to the cap.

[percy]

Fantastic assets;
"You will never buy better!"

[CJ]

Fantastic assets;
"You will never buy better."!The yeild looks very attractive on the capped price.

[Joshuatree]

A question is why do they claim big depreciations?.

[MAC]

A question is why do they claim big depreciations?.

The bulk of Meridian assets are large hydro's built by NZED between 1930 and 1985. During the early corporatisation phase 1993 through 1996 there was a lot of debate as to how best to value these assets and Meridian have been tweaking valuations ever since they inherited them.

Basically, almost all of their assets, by value, are well over 25 years old but still depreciating heavily as large hydro's require very little on-going re-capitalisation over what could be a life span of over a century ?

[CJ]

They would have revalued them up as well so they maybe depreciating the revaluations.

That is basically the Greens/Labours theory - you shouldn't be able to earn a return on the 'fake' revaluation.

[Slowlearna]

What do people see the sp movement being when different events happen, ie start price of $1, after a year a 13.5% divi, then people trying to scrape together money for next installment (18 months and a bit away)?
I know its a stab in the dark answer but just interested to see how you think Mr market will react.

I heard the TAB were taking bets. :eek2:

[Joshuatree]

One scenario

Short term: A great listing with instos buying up big; after listing as well, so a winner for staggers and investors

med term : Cunliffe overdoes his aggressive attack(like team NZ ?) and shoots self in foot, and Key with the slippery silver tongue wins well at election. Great divs and sentiment keep the price healthy

Long term. : Although Tiwai is an older less efficient plant , ALU prices recover and by 2017 the mkts are prepared to pay a little premium for green ALU )hydro power). S/p remains strong and divs way better than the bank continue.

whats your poss scenario/s cheers J/t

[macduffy]

I havn't decided on investing in Meridian yet, but here's a couple of random thoughts.

Meridian's "green" status is just the luck of the draw. They missed out on all those nasty thermal stations when ECNZ was broken up.

As others have noted, they still need to buy thermal generated power when the rain doesn't fall sufficiently in the right places.

I can't see any rational business being prepared to pay over the odds for "green " aluminium.

The eventual loss of the Tiwai contract, if it happens, will free up generation to be sold at better, market prices to other customers. Prices overall may fall but the losers, under most climatic conditions, will be the higher-cost generators, not Meridian.

(Hmmmm.... I seem to be talking myself into investing in this company.)

:mellow:

[percy]

I havn't decided on investing in Meridian yet, but here's a couple of random thoughts.

Meridian's "green" status is just the luck of the draw. They missed out on all those nasty thermal stations when ECNZ was broken up.

As others have noted, they still need to buy thermal generated power when the rain doesn't fall sufficiently in the right places.

I can't see any rational business being prepared to pay over the odds for "green " aluminium.

The eventual loss of the Tiwai contract, if it happens, will free up generation to be sold at better, market prices to other customers. Prices overall may fall but the losers, under most climatic conditions, will be the higher-cost generators, not Meridian.

(Hmmmm.... I seem to be talking myself into investing in this company.)

:mellow:

I think you are 100% right.Losing Tiwai would mean BIG worries for more expensive generators,and greater profits for Meridian.

[Xerof]

I was asked today by an acquaintence whether there is a prospect of the Instalment Receipt secondary market price, ceterus paribus, being discounted if there is a differential between the retail cap of .60 cents, and the (higher) institutional price? ($1.80 for example)

I'm leaning towards 'no' because anyone/everyone who buys on the market will be obligated to pay the higher price anyway, and retail holders only get the cap benefit if they don't sell. So I guess the 'obligation price' post IPO will always be seen as $1.80 and this is the benchmark on which the market will trade

Interested in others' views on this, but makes me think if you want it, buy in the IPO. Those who are going to wait and see where it settles, could be giving up 20 cents.

[percy]

I was asked today by an acquaintence whether there is a prospect of the Instalment Receipt secondary market price, ceterus paribus, being discounted if there is a differential between the retail cap of .60 cents, and the (higher) institutional price? ($1.80 for example)

I'm leaning towards 'no' because anyone/everyone who buys on the market will be obligated to pay the higher price anyway, and retail holders only get the cap benefit if they don't sell. So I guess the 'obligation price' post IPO will always be seen as $1.80 and this is the benchmark on which the market will trade

Interested in others' views on this, but makes me think if you want it, buy in the IPO. Those who are going to wait and see where it settles, could be giving up 20 cents.

As always I agree with you.!!

[Winston001]

The eventual loss of the Tiwai contract, if it happens, will free up generation to be sold at better, market prices to other customers. Prices overall may fall but the losers, under most climatic conditions, will be the higher-cost generators, not Meridian.



Must say I am puzzled about what happens to the Manapouri power if Tiwai closes. At the moment that electricity cannot be sent north, apparently a new line up to Benmore is required.

Does that use existing pylons or is a whole new line required?

Also from what I've read, the electricity generated by Manapouri is heavy DC stuff because that is what smelters need. It isn't generated in a useful current for the NZ network. But I could be completely wrong.

Anyone?

[gloworm]

Must say I am puzzled about what happens to the Manapouri power if Tiwai closes. At the moment that electricity cannot be sent north, apparently a new line up to Benmore is required.

Does that use existing pylons or is a whole new line required?

Also from what I've read, the electricity generated by Manapouri is heavy DC stuff because that is what smelters need. It isn't generated in a useful current for the NZ network. But I could be completely wrong.

Anyone?


Looking at the wiring diagram (http://systemoperator.co.nz/f1686,84688506/SpdLocatordwg.pdf) located at the bottom (MAN2201 & TWI2201), Tiwai is connected to Manapouri via two double circuit 220 kV transmission lines

[MAC]

Must say I am puzzled about what happens to the Manapouri power if Tiwai closes. At the moment that electricity cannot be sent north, apparently a new line up to Benmore is required.

Does that use existing pylons or is a whole new line required?

Also from what I've read, the electricity generated by Manapouri is heavy DC stuff because that is what smelters need. It isn't generated in a useful current for the NZ network. But I could be completely wrong.

Anyone?

Hi Winston, Manapouri was built by Bechtel concurrently with Tiwai Point, the government at the time never intended the power to go elsewhere. If Tiwai were to close suddenly, up to 400MW of Manapouri output would be stranded without the transmission being upgraded (existing corridors) through to the HVDC terminal at Benmore.

http://www.3news.co.nz/Grid-can-cope-with-smelter-closure/tabid/423/articleID/293223/Default.aspx

As I understand there is a four year notification period, so the risk is that Transpower may not be able to get the transmission upgrade built in that timeframe, politically and/or physically. Sounds like a long time, but NIMBY's don't like transmission lines.

The 630MW potentially available (inc the stranded 400MW) from Manapouri would go into the market, likely displacing thermal output at Huntly, so there are risks to both Meridian and Genesis.

[macduffy]

See p 54 of the Offer Document for Meridian's view on this issue.

[janner]

Brent King is telling us all to invest in Meridian. Time to run away if there ever was a contrarian indicator in the market!!! :eek2:

http://www.sharechat.co.nz/article/970a6b9f/time-to-move-before-you-get-caught-in-the-meridian-watershed.html

Followed your link moosie.. Must say I have never heard of him.. Which probably shows up my narrow reading..
Jeez .. Another guru to follow ??.. Yeah right..

He says..

My view on the results of the above will be:
•The price of Meridian will be more competitive (i.e. the Government will want an increase after listing not a decrease).
• There will be a bigger effect on other companies (expect strong selling of second liners !).
• The offer is probably the smart one to take because of this.

I agree with his statements.. I do not really care whether he has given " BUM " statements before..

Meridian is in my opinion.. A good deal whether you are in it for.. Stagging.. Short term.. or Long term..

Having sorted that out.. What to sell down from my portfolio that is under performing is the biggest problem..

Will probably end up buying what the purse can come up with in the next few weeks..

It is a BUY .. IMHO.. DYOR..

[Joshuatree]

"Grid can Cope" info very helpful thanks MAC and depreciation comments too. Great thread allround share traders cheers and good luck TNZ today.

[The BOWMAN]

One of the issues for MRP is the IPO sweetener. Investors who got in after IPO will not have any benefit. This created the situation of over-inflated IPO subscription and subdued demand afterwards I think, which probably explains how it has performed so far. This time with Meridian, do the investors buy after IPO still get the "pay later" benefit? Is there any other sweetener that will differentiate before and after IPO purchases?

[CJ]

One of the issues for MRP is the IPO sweetener. Investors who got in after IPO will not have any benefit. This created the situation of over-inflated IPO subscription and subdued demand afterwards I think, which probably explains how it has performed so far. This time with Meridian, do the investors buy after IPO still get the "pay later" benefit? Is there any other sweetener that will differentiate before and after IPO purchases?Post IPO investors still get the instalment receipt benefit. However, they dont get the benefit of the retail price cap.

So say the IPO price is $1.80 with $1 paid up front, with retail investors only having to pay $1.60.

What happens when the market determines the correct price is $1.70. To the IPO retail investor, they think their instalment receipt is worth $1.10 as they only have to pay 60c, but to the purchaser, they are only willing to pay 90c, since they will have to pay 80c. This could result in a locked in effect where retail investors are incentivised to hold (which is the point of the incentive)

I guess this is the same issue with MRP where IPO investers will get extra shares issued (4% worth up to a cap) if they hold long enough.

[blackcap]

I can see the emergence of a secondary market where you offer your installment reciepts on a delayed delivery basis to take advantage of the price difference.

[CJ]

I can see the emergence of a secondary market where you offer your installment reciepts on a delayed delivery basis to take advantage of the price difference.on a formal (ie. an actual market set up or instrument offered by an institution) or informal basis (just between friends)?

How would this be done - forward purchase agreements.

[blackcap]

I am not sure if it could be done on a formal basis as there "may" be legal difficulties. I guess some kind of CFD or some similar tool could be utilised. Between friends could be cumbersome also. I quess the possibility does exist (need someone or broker with a creative mind) with these kind of shennanigans.

[RTM]

I'm not sure that the MRP sweetener is really significant. With my patriotic hat on I got $15k (6000) MRP. For my trouble I will get 200 more shares after two years. This really isn't enough to influence decisions for me one way or another. 200 @ $2.20 (say) = $440 = 7 cents per share. Maybe I'm looking at this incorrectly ? But in any case.....I guess the damage is done...so I am holding.


One of the issues for MRP is the IPO sweetener. Investors who got in after IPO will not have any benefit. This created the situation of over-inflated IPO subscription and subdued demand afterwards I think, which probably explains how it has performed so far. This time with Meridian, do the investors buy after IPO still get the "pay later" benefit? Is there any other sweetener that will differentiate before and after IPO purchases?

[robbo24]

I'm not sure that the MRP sweetener is really significant. With my patriotic hat on I got $15k (6000) MRP. For my trouble I will get 200 more shares after two years. This really isn't enough to influence decisions for me one way or another. 200 @ $2.20 (say) = $440 = 7 cents per share. Maybe I'm looking at this incorrectly ? But in any case.....I guess the damage is done...so I am holding.

I think it's actually a 40:1 share bonus, right? So a 4% bonus issue to 24 month holders. Which means you get 150 bonus shares.

At the end of the day, IPO buyers are still getting their pre-IPO scheduled dividend yield (and indications it will be upgraded further).

What's to complain about?

[RTM]

I think it's actually a 40:1 share bonus, right? So a 4% bonus issue to 24 month holders. Which means you get 150 bonus shares.

At the end of the day, IPO buyers are still getting their pre-IPO scheduled dividend yield (and indications it will be upgraded further).

What's to complain about?

"New Zealand Applicants who continue to hold their Shares in the same registered name for a
period of 24 months will be entitled to Loyalty Bonus Shares based upon the ratio of 1 for 25, up
to a maximum number of 200 Loyalty Bonus Shares for each New Zealand Applicant . The Loyalty
Bonus Shares have the effect of providing New Zealand Applicants who retain their Shares for 24
months with additional Shares for no further cash investment (if certain conditions are met)."

Conditions above. Not complaining. Just not sure that this meagre inducement really inflated the IPO at all.

[CJ]

Not complaining. Just not sure that this meagre inducement really inflated the IPO at all.I think it will have less effect that different final instalment prices, not just becaue the amount could be bigger (20c/1.80 = 11% compared to 4%) but it is more explicit since cash will need to be outlaid as apposed to just receiving it.

[robbo24]

"New Zealand Applicants who continue to hold their Shares in the same registered name for a
period of 24 months will be entitled to Loyalty Bonus Shares based upon the ratio of 1 for 25, up
to a maximum number of 200 Loyalty Bonus Shares for each New Zealand Applicant . The Loyalty
Bonus Shares have the effect of providing New Zealand Applicants who retain their Shares for 24
months with additional Shares for no further cash investment (if certain conditions are met)."

Conditions above. Not complaining. Just not sure that this meagre inducement really inflated the IPO at all.

1 for 25... Ah yes that's right, or 4 for 100, or 4%...

[CJ]

me thinks that before anyone considers stagging the meridian IPO that one must consider that you have to supply a name, address and nz ird number prior to purchase that means it would be very easy for the tax man to cross reference those holders/staggers details, who come off the regestry with in a short time period to take quick profits, and their ird records.Computershare could provide this info for any share quiet easily so no difference.

Given the number of IPO's this year, I wouldn't be suprised if IRD requested info from computershare for everyone who bought into the bought and sold an IPO share within 6 months, cross reference and filter for those who did it on every IPO (attack first), most IPO (next round of investigations once they get more money from government based on their success), more than one IPO (a letter will be sent saying they will pursue if you dont disclose).

Tehy did a similar thing with the Land Transfer Office.

[Bobcat.]

me thinks that before anyone considers stagging the meridian IPO that one must consider that you have to supply a name, address and nz ird number prior to purchase that means it would be very easy for the tax man to cross reference those holders/staggers details, who come off the regestry with in a short time period to take quick profits, and their ird records.

What 'Quick profits' ? I'm expecting the sp to drop initially - a la MRP. Also, it's October when the DJIA and S&P500 typically take a bit of a dive. Nov is more likely to be the time to pick em up at fair value.

[CJ]

gosh do you work for IRD cause what you have stated is exactly how they would do it.NO - But I understand that is how they did it for people who did qccik flick properties. Each year, they get more money in the budget to pursue given the success they are having.

[robbo24]

Give me regular dividends any day of the week...

[CJ]

Give me regular dividends any day of the week...At a price of $1.60, this seems to be the cheapest power co out there with less downside from Tiwai (provide transpower pulls finger) but big downside from the Greens policy.

[SCOTTY]

At a price of $1.60, this seems to be the cheapest power co out there with less downside from Tiwai (provide transpower pulls finger) but big downside from the Greens policy.

Demand for power even without Tiwai must be on a strong growth curve with all the new power conections required for irrigated dairy farm conversions alone. No dought the new City of Christchurch will need a bit as well :).

[Bobcat.]

At a price of $1.60, this seems to be the cheapest power co out there with less downside from Tiwai (provide transpower pulls finger) but big downside from the Greens policy.

A share price is neither cheap nor expensive until one takes into account the number of shares or more precisely the forecasted earnings per share, in other words the expected price to earnings ratio...considering also debt to equity ratio, book value, risk profile, etc.

e.g. just because this IPO is priced 'cheaper' than MRP does not mean that it better value. CJ - I'm surprised - given your guru status, I figured you would've been around long enough to know that.

BC

[CJ]

A share price is neither cheap nor expensive until one takes into account the number of shares or more precisely the forecasted earnings per share, in other words the expected price to earnings ratio...considering also debt to equity ratio, book value, risk profile, etc.

e.g. just because this IPO is priced 'cheaper' than MRP does not mean that it better value. CJ - I'm surprised - given your guru status, I figured you would've been around long enough to know that.

BCThats not what I meant. I meant at the price cap of $1.60 compared to say $1.80 that instos may have to pay. The yeild at $1.60 is much higher than the other power cos or infrastrcutre cos, with the exception of Chorus.

Haven't looked at P/E. Will do that next.

[Bobcat.]

sorry CJ - I misunderstood your post.

[blackcap]

The more I think about this and the more I see this advertised on tv I am starting to come to the conclusion that the govt is being rather irresponsible with the way it is offering these shares. Because at the end of the day they are asking moms and pops to get into leveraged equities and that game can be dangerous for the astute investor let alone a layman.

That said, I will be buying some as the potential discount and probable low price make this a bargain when compared to MRP.

[fish]

Demand for power even without Tiwai must be on a strong growth curve with all the new power conections required for irrigated dairy farm conversions alone. No dought the new City of Christchurch will need a bit as well :).
should be on a strong growth curve but currently appears stagnant and predicted to actually decline a little.
I guess global warming and increased energy efficiency are reducing demand

[MrAT]

NO - But I understand that is how they did it for people who did qccik flick properties. Each year, they get more money in the budget to pursue given the success they are having.

Why do people who stag have to pay extra tax? NZ doesn't have a capital gain tax?:confused:

[baller18]

Why do people who stag have to pay extra tax? NZ doesn't have a capital gain tax?:confused:
Not counted as capital gains tax if your trading.
Staggers = traders

[CJ]

Why do people who stag have to pay extra tax? NZ doesn't have a capital gain tax?:confused:there are other dedicated threads on this so have a look for more detail.

If you buy with the intention to profit from selling, then it is deemed to be income, not a capital gain.

[MAC]

Demand for power even without Tiwai must be on a strong growth curve with all the new power conections required for irrigated dairy farm conversions alone. No dought the new City of Christchurch will need a bit as well :).

Electricity demand in NZ is forecast to grow at around 1.2% per annum over the foreseeable future, so any meaningful growth for Meridian in terms of capacity would need to come from offshore investments eg: that wee hydro they are looking at in Queensland. Meridian have a combined hydro and wind portfolio of 2,744MW, so to grow at a humble rate of let’s say 10%, they would have to build 274MW per annum. Hmmm, entirely unlikely ?

Consider also that since 2007 there has been an enormous amount of power station construction in NZ and the market has switched from being slightly constrained to being slightly over supplied. This is one of the reasons CEN has been trading in such a tight range over the last 4-5 years.

Meridian should be a fantastic dividend stock though for those who pick up the IPO incentives, well better than mum and dad leaving their hard earned cash in the bank.

I’m still trying to reconcile if the IPO incentives are worth more than just waiting for a better entry point during dryer event times, the hydrology is about average at present. Need to do some more work on this.

4866

[ratkin]

UK labour party talking about a freeze on utility bills if they come into power.

Expect NZ labour party to follow

[percy]

Maybe some one in NZ Labour party will have read Muldoon's book and realise that price freezes do not work.

[gv1]

Why do people who stag have to pay extra tax? NZ doesn't have a capital gain tax?:confused:

NZ doesn't have have CGT, but some doesn't understand that if you are in a taxable activity, intentions of engaging in business for gain/loss. Every dollar earned is taxable.
Thats why I am confused when people say that those who buy and sell houses doesn't pay tax. They'll have to pay income tax on gains made, as this becomes taxable activity under Income tax act.

[fungus pudding]

Housing is no different, if you buy and sell house's for a profit and dont pay tax and the IRD get wind of it look out.
I know of a family that has done it for years and they just keep buying propreties in different names.
Make's me a bit grumpy cause if you make money you should pay tax thats how the system works.

No matter what system, there's always a way around taxes. The only way to make a cgt work is to not allow exceptions, e.g. the family home.

[MAC]

Maybe some one in NZ Labour party will have read Muldoon's book and realise that price freezes do not work.

If you may think we have government intervention here, take a look at how totally crazy Queensland is, Labour put a freeze on power prices, and guess what, power companies stopped building, why would they with that sort of risk, and now the Govt is increasing power prices by 22.6%, gee what a surprise ?

http://www.brisbanetimes.com.au/queensland/queensland-electricity-prices-to-rise-20130531-2ng00.html

[percy]

MAC.
Thank you for the link.
No surprises there.! lol.

[hammer&nail]

Asides from the fact that P/E ratios for NZ electrical utilities are completely meaningless.

[JAYAY]

Yes, I heard of a builder who successively built houses, lived in them while he built the next one and sold the ones he moved out of as if they werwe private property. IRD are not stupid, they caught up with him and he went for a skate big time. If you know someone who is making big bucks ripping of the tax system then understand that we are all paying for it. You can always write a anonymous letter to IRD. They are obliged to follow up on all anon info.

[Theracay]

Yes, I heard of a builder who successively built houses, lived in them while he built the next one and sold the ones he moved out of as if they werwe private property. IRD are not stupid, they caught up with him and he went for a skate big time. If you know someone who is making big bucks ripping of the tax system then understand th at we are all paying for it. You can always write a anonymous letter to IRD. They are obliged to follow up on all anon info.

Well they do have different laws specifically for builders and land dealers. I believe they would get an exemption for private residential property under certain conditions, but from what I understand its a guilty until proven innocent situation. So once they found out he was a builder I'd expect him to need some solid proof.

[baller18]

hmm.. IMO, I think the meridian offer is quite attractive due to the dividends.

If we go by the price of $1.60 and a dividend yield of 8% from the second year onwards, we get quite an attractive capitalisation rate.

12.8 cents / 0.055 (a 5.5% bond rate) gives meridian a value of $2.3
12.8 cents / 0.06 (a 6% bond rate) gives meridian a value of $2.13

[percy]

hmm.. IMO, I think the meridian offer is quite attractive due to the dividends.

If we go by the price of $1.60 and a dividend yield of 8% from the second year onwards, we get quite an attractive capitalisation rate.

12.8 cents / 0.055 (a 5.5% bond rate) gives meridian a value of $2.3
12.8 cents / 0.06 (a 6% bond rate) gives meridian a value of $2.13

baller18,
Thanks for doing the maths.

[CJ]

hmm.. IMO, I think the meridian offer is quite attractive due to the dividends.

If we go by the price of $1.60 and a dividend yield of 8% from the second year onwards, we get quite an attractive capitalisation rate.

12.8 cents / 0.055 (a 5.5% bond rate) gives meridian a value of $2.3
12.8 cents / 0.06 (a 6% bond rate) gives meridian a value of $2.13Tehy have forecast dividends of 10.5c for 2014 and 11.5 for 2015 - net.

But even so, the yeild compares favourably to the likes of CEN, TPW, MRP, VCT which are in the 5-6% range. Comparable to CNU

Disc: just halved my exposure to CEN, AIA and IFT for the upcoming IPO. Also hold TPW and CNU.

[baller18]

Tehy have forecast dividends of 10.5c for 2014 and 11.5 for 2015 - net.

But even so, the yeild compares favourably to the likes of CEN, TPW, MRP, VCT which are in the 5-6% range. Comparable to CNU

Disc: just halved my exposure to CEN, AIA and IFT for the upcoming IPO. Also hold TPW and CNU.
Thanks for clearing that up for me CJ! Much appreciated!

[blackcap]

But what about the fact that for the year to June 2015, the company plans to raise its annual dividend rate 9.5% to 11.5 cents (plus some imputation tax credits). However that equates to 140% of its forecast profits. How are they going to sustain this? This is just too ludicrous to be funny. So in 2014 they are going to distribute 144% of forecast profits and in 2015 140%. So really all this talk of yields is IMHO just silly.

[777]

Are they not in the process of selling off a pile of land which would give them the ability to pay out the higher dividend?

[blackcap]

Maybe they are selling land to pay dividends. But is doing that sustainable? I mean if you have to sell capital, borrow, or issue more shares to pay dividends...... not really a reliable long term model is it. If a company is going to pay out more than it's profits then they will have declining growth. These "high yields" are there to attract the punters, a marketing gimmick. And most will fall for it too. So much so that I am intending to purchase some Meridian because I think it will do ok in the short term.

[CJ]

Profit is distorted by non cash items - mainly depreciation on revalued assets.

They are paying out less than 100% of free cash flows, which is the amount of cash they have after doing all the required maintenance.

[MAC]

Are they not in the process of selling off a pile of land which would give them the ability to pay out the higher dividend?

Meridian are one of the largest farmers in the country with all that grazing land acquired for their failed project Aqua in the Waitaki valley, sooner or later they will either sell it all or have another go at getting a resource consent, I think the latter is unlikely ?

[karen1]

Are they not in the process of selling off a pile of land which would give them the ability to pay out the higher dividend?

Apologies if this has already been posted http://www.stuff.co.nz/business/industries/9205996/Meridian-Energy-land-for-sale

[percy]

Apologies if this has already been posted http://www.stuff.co.nz/business/industries/9205996/Meridian-Energy-land-for-sale

Thank Karen1.

[Joshuatree]

Market Analysis ,at the risk of the wrath of the financial markets Authority(who've effectively outlawed him and his paid sub "Market Analysis for doing the same with MRP according to James Cornell) has a Dont Buy research note in his newsletter

"Paying unsustainable high divs to inflate the D/Y in an attempt to make shares look attractive to inexperienced investors could be misleading and deceptive conduct""

[Joshuatree]

Thanks too karen. That land worth re $20 million 777.

[percy]

Profit is distorted by non cash items - mainly depreciation on revalued assets.

They are paying out less than 100% of free cash flows, which is the amount of cash they have after doing all the required maintenance.

I think a look of people are over looking this important fact.

[MAC]

I’ve decided not to invest in Meridian.

The forward electricity demand growth in the sector is low at 1.2% p.a and the market is presently over supplied with capacity and probably will continue to be so for a few years. It is likely that Meridian will trade in a tight range as CEN has done so for the last four years and MRP will probably do so for the same reasons.

The wild card here being if Genesis is floated inclusive with the Huntly coal fired units or whether they are mothballed and retained by the government as emergency reserve, much like Whirinaki was. A mothball announcement would be a better time to buy the sector.

Meridian may have some degree of forward growth through a small level of build abroad or through acquisition, but with the dividend policy they intend, this will be limited.

The IPO is occurring at a time of average hydrology, and I don’t believe that the IPO valuation and incentives out way simply waiting for a better entry point during dryer low storage events, although this could be some time away or even a year or two.

That’s not to say that the Meridian asset portfolio is not exceptional and that as a dividend play, this stock may suit those looking for low risk income which provides better return potential than a fixed term deposit, provided a trading range does not become a point of stress.

I’ve simply decided that there are much better value investment opportunities within the NZ50 at present and I can accept greater risk for greater return within my portfolio.

[Joshuatree]

Comparing with Z which also has little growth in the forseeable future but is a good yield play. Currently up re 8.3% up since listing. I guess it depends on the Instos and how keen they are to take up. Anyone heard anything? cheers JT

[peat]

I think a look of people are over looking this important fact.


Profit is distorted by non cash items - mainly depreciation on revalued assets.

They are paying out less than 100% of free cash flows, which is the amount of cash they have after doing all the required maintenance.

I guess its my normal view that depreciation is an expense which if not incurred now , will have to be at some point, so as to allow the business to continue, and this would mean that a high short term yield (greater that profits) is only gobbling up the future - however as I understand it what you're saying is this may not be a concern with these very long lasting assets (hydro stations).

[macduffy]

Fair point, peat. It's sometimes all too easy to dismiss depreciation as "not affecting cash profits/cash flow" and overlooking the need to replace assets sometime down the track.

[CJ]

I guess its my normal view that depreciation is an expense which if not incurred now , will have to be at some point, so as to allow the business to continue, and this would mean that a high short term yield (greater that profits) is only gobbling up the future - however as I understand it what you're saying is this may not be a concern with these very long lasting assets (hydro stations).pretty much. Especially in an environment where there is no growth so you are only maintaining, not growing your asset base so free cashflows will be high. CEN has said the same so expecting their yeild to increase in the next few years too.

My current thinking is:
- this will be a good income share going forward, based on an entry price of $1.60
- Greens/Labour policy is a risk so you really need to weigh up their change of getting in and if so, the chances that they implement as proposed. There are a number of other, easier options which would provide good results.
- Tiwai not a major risk as Transpower will come through with the required cable. However, as the expensive generators decommission, the spot prices will be lower so less margin, but still more than the other companies. Upside potential if the smelter ramps up again as I think the new contract for discount power is for a lower quantity, the any increase will be at a higher price.

You will have to hold on for 18 months to benefit from this as true price (solely looking at yeild) is looking more like $1.80, which the instos and buyers after IPO will be paying. The stag wont be there as the IPO discount is locked in for the instalment receipt period.

[CJ]

Some interesting comments re CEN and MRP. As noted in my previous post, Meridian would be less effected than other re tiwai but more from Labour/Greens.

http://www.kiwiblog.co.nz/2013/09/energy_sector_share_prices.html

[Daytr]

Aluminium production in the Western World is a dead duck, so why would you even contemplate buying into a major supplier to a smelter that should & quite likely could be closed. I have traded base metals professionally for 15 years in Australia & one of my customers had a large stake in an ali smelter & they could have locked in a price of around $2800/ton at the time. I told them to hedge the bejeebers out of it & then sell their stake as China just keeps ramping up cheap production & the Mid/East is doing the same as they want to diversify away from oil & create middle management jobs & use their cheap energy to do so. There are also other countries in Asia & South America looking to emulate what the Mid/East is doing & what NZ did in the 1970s to absorb excess power created by the bigger than required hydro power stations. The idea was then bigger was better & perhaps it was, however now it doesn't make sense at all & not really sure it even did back then. Its obviously a political hot potato due to the jobs that would be lost etc & reminds me of the car assembly industry in Australia that has also been subsidized by the tax payer for far too long. Rio has written off something like $30Bln on their aluminium assets around the world. When they bought them we (commodity trading desk) thought they paid double what the should have, but infact it was more like triple. National is not listening to the public on many fronts & imo have lost sight of what average Joe NZer wants & there is a chance they could be turfed out at the next election particularly if the Greens & Labour form a coalition & you can bet the Maori parties would join them as well. So to make a quick buck the IPO has to show a quick profit otherwise you could be sitting on a lame duck imo. Mighty River has hardly been a stellar investment & I think this one has far more complications than MRP, again just my opinion obviously.

[percy]

Demand for power even without Tiwai must be on a strong growth curve with all the new power conections required for irrigated dairy farm conversions alone. No dought the new City of Christchurch will need a bit as well :).

I believe there are a lot more South Island farming areas using irrigation for crops, and there are a huge number of dairy farm conversions going on for the foreseeable future .They use thousands of dollars of electricity a month/week to run.
I also agree with you, that the new City of Churchurch will put demands on generators.
Meridian will find themselves "well positioned" to supply these customers.

[percy]

Comparing with Z which also has little growth in the forseeable future but is a good yield play. Currently up re 8.3% up since listing. I guess it depends on the Instos and how keen they are to take up. Anyone heard anything? cheers JT

Haven't heard anything.
I had cash sitting at the bank.Emergency fund to last us a year if needed.
Decided not to have any emergencies for the next year,so have put two thirds of it in Meridian and one third in ZEL.[brought at issue]

[CJ]

Aluminium production in the Western World is a dead duck, so why would you even contemplate buying into a major supplier to a smelter that should & quite likely could be closed.Because if they do close, they can sell that same electricity into the market at a higher price.

This will require Transpower to build extra transmission lines.
It will also result in expensive generators closing so the spot rates will reduce but the effect on Meridian will be less than the other power cos since its costs are low.

[CAM]

Because if they do close, they can sell that same electricity into the market at a higher price.

This will require Transpower to build extra transmission lines.
It will also result in expensive generators closing so the spot rates will reduce but the effect on Meridian will be less than the other power cos since its costs are low.

Thats my thinking as well. Havent looked at the likely sell prices of electricity though.
If Tiwai closed and they could only sell half the power but got twice the price.... leave them pretty much even???

[troyvdh]

surely at the end of the day (I hate that) it aint a case of all in but perhaps just a wee bit.....buy a few...to add diversity...to what you have already....Sure as hell JK does not want a repeat of the last gummit IPO....the debate however is fantastic....

[CJ]

does anyone know if they will offer a divi reinvestment plan with the first few dividends.i don't know but a DRiP is inconsistent with the govt requirement to maintain 51% as they will want the cash! not further shares to maintain that %

[percy]

surely at the end of the day (I hate that) it aint a case of all in but perhaps just a wee bit.....buy a few...to add diversity...to what you have already....Sure as hell JK does not want a repeat of the last gummit IPO....the debate however is fantastic....

At the beginning of the night I think you are maybe you a right !

[percy]

surely at the end of the day (I hate that) it aint a case of all in but perhaps just a wee bit.....buy a few...to add diversity...to what you have already....Sure as hell JK does not want a repeat of the last gummit IPO....the debate however is fantastic....

At the beginning of the night I think you are maybe right !

[BlackCross]

Don't touch it (at $1.60) - Excellent advice from Milford Asset Management executive director, and veteran sharemarket commentator, Brian Gaynor.
http://www.interest.co.nz/news/66575/mighty-river-power-share-sale-has-had-negative-impact-sharemarket-meridian-price-too-high

Sounds as if the only people happy with these floats are the government and Key's investment banker chums.

[BlackCross]

Just mr gaynor trying to get in at a better price

Well he's certainly reinforced my view that, given the potential political risk and the debacle of the MRP float, it's overpriced (@$1.60).

[Joshuatree]

Instos start screwing the price down then leap in boots and all.

[macduffy]

Just mr gaynor trying to get in at a better price

Exactly. "Talking his own book."

A lukewarm takeup of the issue followed by a weak aftermarket would suit Milford very well.

;)

[sideline]

Just mr gaynor trying to get in at a better price

Agree, we have to take these comments with a grain of salt. After all, Gaynor has to stay in the news
to promote his own funds. Thats what he's doing here.

[gv1]

I think gaynor may be right. I have invested in MRP, regret it now. For everyone's good but if you think its a good investment then make your day.

[Joshuatree]

Sorry to hear that gv1, long term i hope it pans out for you.Luckily there will be independent research avail on the NZX on the 30th this time to help folks make an informed decision. From what i read on MRP on share trader and discussions with friends ,MRP was just too expensive and with the blackout stopping brokers from giving unbiased research and advice folks just had to go with their "neutral" brokers who were making commisions out of that float.

[percy]

and he is hardly going to say it is a bargain and tell everyone to dive into cause if it does what mrp has done he is going to look like a right twat.

I like Brian Gaynor's articles,but like Meridian's assets more.!

[Xerof]

Yes, I respect BG's perspectives on the sharemarket, and would be delighted if the price is set at $1.30-$1.40.

Remember, if thats the bookbuild price, then thats also the retail price.

Bring it on you low-ballers you

gv1, don't fret about MRP - as the conspiracy theorists will tell you, it's being held down by the insto's until after the price is set for Meridian.

I tend to go with those thoughts personally - there are big bikkies at stake on these floats

[bull....]

cause the fund managers dont want many retail investors to get in , they get to pay a lower price because of lack demand and dont have to buy on market afterwards to get there quota

MRP at todays price + div and your hardly down that much from ipo

[fungus pudding]

hope no one is looking to stag again, IRD sitting in wait for those fools again and to compare with the MRP IPO :)

Huh? What's going to worry the IRD about a quick sale? Their only concern is whether tax is paid when due.

[Joshuatree]

First NZ Capital research here if anyone hasnt seen it https://www.firstnzcapital.co.nz/public/

[iceman]

Have been studying various info on Aluminum smelters around the World. My reading of it is:
# Currently there are plans for around 35 new aluminum smelters worldwide
# 25 in Asia, 3 in Middle East, 4 in Europe /East Europe, 2 in Canada & 1 in Argentina
# Total production for all those at full production would be around 16 million tonnes p.a.
# Estimated electricity price in China & India is around USD 40/Mwh
# construction cost of India/China is around 1/3 of the Western World
# the average cost of electricity at the other planned smelters is around USD 20-25/Mwh
# First NZ Capital estimates new electricity contract with Tiwai at USD 39.4/Mwh

My conclusion is that, unless we get around 20% increase in aluminum prices and around 10% drop in FX for NZ$ against USD (both possible), Tiwai has no future. Shadbolt, prepare Southlanders for that happening, sooner rather than later.
BUT, from my reading of it, it will have only minimal impact on Meridian, CEN & MRP. The Labour/Green threat is the real issue here.

I really want to invest in Meridian. Think they have great assets, sustainable future dividends from very positive cashflow, but fear political changes.
For me the question is, do I put my money faithfully into Meridian or do I start liqidating NZ assets and move them off-shore fearing a Cunliffe takeover ?

[BlackCross]

As Mr.Gaynor says the big gainers from these floats are Key's investment buddies.

"The investment banks in charge of selling Mighty River had the potential to earn up to $1,333,334 each if they reached certain price and value targets.
This time around the bankers will be able to earn only up to $750,000 if they reached certain price and value targets.. Commission fees are then paid on top of that...."

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11128967


Brian Gaynor, an executive director of Milford Asset Management, said initial public offers were a "gravy train" for the investment banks.
"Is this too high? They are all too high."
Gaynor said bankers were incentivised to get the highest price possible for the seller but there was little to ensure the price of the shares was not lower a year after the float.
He said that while the Meridian float was bigger, the size of a float did not make much difference to its costs.
"You are still having to go through the same process."
The bankers and brokers involved in the deal will get paid after the sharemarket listing, set down for October 29, despite 40 per cent of the money not due to be paid until May 2015..."

So, who has more incentive to alter the share price. Gaynor or the bankers? Looks like the latter to me.

[iceman]

As Mr.Gaynor says the big gainers from these floats are Key's investment buddies.

"

And poor Gaynor doesn't fit into that eh ? I used to really like Gaynor's articles but recently he's gone really strange and I no longer put much weight on his comments. I was also very close to moving my retirement savings (those out of my day to day control) to his funds but belatedly decided not to because of what I regard as his recent change of tune !

[percy]

And poor Gaynor doesn't fit into that eh ? I used to really like Gaynor's articles but recently he's gone really strange and I no longer put much weight on his comments. I was also very close to moving my retirement savings (those out of my day to day control) to his funds but belatedly decided not to because of what I regard as his recent change of tune !

From what I have observed "The Iceman Self Managed Fund" [TISMF] would have out performed all NZ Funds,including Milford over the last couple of years.Should "TISMF" be able to retain Iceman as Fund manager, this out performance should continue into the foreseeable future.!

[CJ]

First NZ Capital research here if anyone hasnt seen it https://www.firstnzcapital.co.nz/public/I think he was a MER employee till recently so he will have a lot of knowledge (bias?).

The interesting thing out of the report is what is the correct metric to use - DCF or EV/EBIT (cash or profits)?

I've been focusing on the cash/Dividends

[iceman]

Thanks Joshuatree for posting this link. I hadn't read it. One incredible bit of info in it is that in 2006 Meridian had 365 full time staff and in 2013 they had 827. Sales volumes have been static during this period. Efficiency of Government owned companies right there for all to see !

[bull....]

another thing is retail investors only pay 1.60 if institutions pay 1.80 then potential ipo opening price is 1.20 no wonder they dont want to pay anymore than 1.60 cause it designed to let retail investors make money?

[blackcap]

another thing is retail investors only pay 1.60 if institutions pay 1.80 then potential ipo opening price is 1.20 no wonder they dont want to pay anymore than 1.60 cause it designed to let retail investors make money?

Don't know if it works like that bull.... I think the price will be $1 for both insots and retail investors but retail investors then pay $.60 for the second installment while instos pay $.80. So the opening price will still be $1.00. Because if you buy on market, regardless if you are retail or insto, you then pay the $.80 second installment.
That is how I understand it anyway.

[bull....]

oh i was meaning if ya pay 1.60 an instos pay 1.8 then potentially if the shares trade at 1.8 you have made 20c + divs hope i got it right this time haha long week

[Master98]

My understanding is price cap $1.6 only for retail investors who participting in the IPO which hold the stock up to 18 months, if you buy shares on the market then you have to pay second installment same as institutions.

[Master98]

oh i was meaning if ya pay 1.60 an instos pay 1.8 then potentially if the shares trade at 1.8 you have made 20c + divs hope i got it right this time haha long week
yes you are right if you hold the stock up to 18 months and market price is $1.8 at that time.

[winner69]

Our friend Chris Lee reckons the govt has been screwed good and proper by the greedy money men with these IPOs

Firstly they ensured the MRP one was not very successful ... made a small loss on that .... but ensured the bigger prize in Meridan is even cheaper now.

Good point ....Meridan gone from what most said was a $6 bill co to something like $4 bill ...... at a time that the NZX is up zonks. He said he going to buy just to some overseas insto getting their mits on the hige discount

You need to go and find his article if interested .... he doesn't like this sort of stuff being quoted or linked

[CAM]

"This emailed client newsletter is confidential and is sent only to those clients who have requested it."

not really when it's easily found with Google. Hardly confidential!

[janner]

NZ is one of the most politically stable countries in the world.
Once Labour discover how much money the goverment will lose in income from altering power charges they will rethink thier great idea's.


According to all the value investment books I have read recently buying a power generation company at 9x ebita is a screaming buy.

I know there are alot of value investors on this site so I am keen to hear your opinions.

Opinion !!.. It stacks up...

Another reason.. We have a very good membership here from all cross sections of the investment community..

Nobody is really nay saying it..

Back to my opinion.. It stacks up.. Ticks all of my boxes..

[RRR]

I guess the main attraction for me is the high dividend yield (artificially elevated due to partly paid nature) in the first 18 months - otherwise it is a dull utility just like many listed peers and PE multiples are similar too(high). So I am going to invest purely for income and I don't expect it to be a multi-bagger! I will be applying for my wife as well even though she does not want it!

[gv1]

Sorry to hear that gv1, long term i hope it pans out for you.Luckily there will be independent research avail on the NZX on the 30th this time to help folks make an informed decision. From what i read on MRP on share trader and discussions with friends ,MRP was just too expensive and with the blackout stopping brokers from giving unbiased research and advice folks just had to go with their "neutral" brokers who were making commisions out of that float.

Cheers Joshuatree. Hopeful but wait and see.

[gv1]

Yes, I respect BG's perspectives on the sharemarket, and would be delighted if the price is set at $1.30-$1.40.

Remember, if thats the bookbuild price, then thats also the retail price.

Bring it on you low-ballers you

gv1, don't fret about MRP - as the conspiracy theorists will tell you, it's being held down by the insto's until after the price is set for Meridian.

I tend to go with those thoughts personally - there are big bikkies at stake on these floats
Thanks Xerof, I don't know why govt keeps selling to instos when can easily be sold to mum and dads.

[amalgam]

I am sure there are far better long term buys in the NZX or ASX than these Govt controlled Utilites

Meridian forecasts a net profit of 187.9 m [7.3 cents/share] to June 2014 & will distribute 144% of these profits. A gross yield of 13.4% [page 9 of the prospectus] assuming full imputation credits---contradicting a note on page 9 saying future divs will be only partially imputed.
For the year to June 2015 an annual div of 9.5% is planned [plus some imp credits]--a distribution of 140% of profits.

How sustainable is all this?

How will the company grow with outgoings like this?

And there is the strong possibility of a Labour/ Greens Govt dictating in the future

Not a great picture for a healthy investment which shows share growth & a sustainable return

[janner]

I am sure there are far better long term buys in the NZX or ASX than these Govt controlled Utilites

Meridian forecasts a net profit of 187.9 m [7.3 cents/share] to June 2014 & will distribute 144% of these profits. A gross yield of 13.4% [page 9 of the prospectus] assuming full imputation credits---contradicting a note on page 9 saying future divs will be only partially imputed.
For the year to June 2015 an annual div of 9.5% is planned [plus some imp credits]--a distribution of 140% of profits.

How sustainable is all this?

How will the company grow with outgoings like this?

And there is the strong possibility of a Labour/ Greens Govt dictating in the future

Not a great picture for a healthy investment which shows share growth & a sustainable return

So your alternative recommendation is ??

Always ready to look at the ones that are not on the global radar..

[amalgam]

So your alternative recommendation is ??

Always ready to look at the ones that are not on the global radar..

IMO there is no such thing as 'not on the global radar ' when investing on the NZX--the market is too small

I feel the object of investing is to increase ones wealth--& there are a no of shares with a much lower PE than these power utilities & with reasonably sustainable Yields.[ If one wants a bit more risk with a very much greater chance of high growth why not look at the ASX small companies]

IMO Power Cos are not safe utilities with a steady cash-flow ---there are the risks rainfall variations, political risks, water right risks & possible Maori claims

[Joshuatree]

Still no research open on NZX. They said it would be avail when the offer opens which was 12.01 am this morn.

[Master98]

Still no research open on NZX. They said it would be avail when the offer opens which was 12.01 am this morn.
lol, you wake up too early:)

[Lion]

"IMO Power Cos are not safe utilities with a steady cash-flow ---there are the risks rainfall variations, political risks, water right risks & possible Maori claims"

Amalgam - add to the risk list declining demand as discussed on this morning's news. IMO this could be a big one in coming years as the use of solar on rooftops increases and other tech advances.

[Billy Boy]

So your alternative recommendation is ??


Tread very very carefully......

Many Mom's and Dad's got burned with MRP, so will not be keen on Meridian.
MRP frightend the average NZ,er. (Most of whom are Share Market Ignorant ).
​BB

[Joshuatree]

Twas up early preparing for my daughters birthday.. Hey i still cant access research provided by NZX.Is it my comp thats the prob or cant other people either.Thanks , I have to decide how many shares i take up this morn.

[Joshuatree]

NZX have just rung and said the Independent research won't be available now until Thurs.

[biker]

Tread very very carefully......

Many Mom's and Dad's got burned with MRP, so will not be keen on Meridian.
MRP frightend the average NZ,er. (Most of whom are Share Market Ignorant ).
​BB

I don't think the 'Mums and Dads' ( I hate that condescending term) interest will now really affect the success or otherwise, of this IPO. There seems to be very good interest from Brokers clients already. This would indicate that some of the risks may not be as poignant as the media and Brian Gaynor are indicating.
The market alone will tell in due course.
Disc. Have been allocated what I wanted from my broker, which is a reasonably substantial holding.

[Joshuatree]

I will leave it until the last poss moment to commit to my "substantial" holding. Awaiting anymore poss ambush from greens and labour and independent research on NZX and anything else that may appear in the papers.

[Billy Boy]

I don't think the 'Mums and Dads' ( I hate that condescending term) interest will now really affect the success or otherwise, of this IPO. There seems to be very good interest from Brokers clients already. This would indicate that some of the risks may not be as poignant as the media and Brian Gaynor are indicating.
The market alone will tell in due course.
Disc. Have been allocated what I wanted from my broker, which is a reasonably substantial holding.
I take your point(s)
Brokers etc have an allocation to sell, so would give the best spin they can.
Tiwai is still there !! Under Contract !!!?. well, Contracts can be/and are broken.
Lab/Green rantings.... Not very helpful at all.
The Waitaki infrastructure is getting close too, or passed it's useby date.
Canals etc. leaking.
'NZ power capacity in surplus
Not really a long term hold.
BB

[Joshuatree]

Think about replacement costs for the Dams

[sharer]

...
Disc. Have been allocated what I wanted from my broker, which is a reasonably substantial holding.

Hmmm .. so have i , just after noon. (After several disappointments in other floats this year).
wonder if it is actually a bit more difficult for brokers to nail the money to the table than current frequent gungho news bulletins are saying.

[ratkin]

Does anyone know if i can apply via asb securities and have the money taken out of cash management account?
Or do i have o apply via the meridian share offer site.

[percy]

Does anyone know if i can apply via asb securities and have the money taken out of cash management account?
Or do i have o apply via the meridian share offer site.

I am with Craigs and they have promised my wife and myself shares.I am paying for both lots from my cash management account.
I would expect you can do the same with ASB.

[Xerof]

Hmmm .. so have i , just after noon. (After several disappointments in other floats this year).
wonder if it is actually a bit more difficult for brokers to nail the money to the table than current frequent gungho news bulletins are saying.

this one is different - your 'firm allocation' can still be scaled after the bookbuild. Right now everybody who asked will get the amount they requested, which I believe was ~900m, or 45% of the IPO

[CJ]

should be nothing stopping anyone else from getting cheap money, I went out and secured 18 months @ 5.6% to purchase Meridian shares.Secured against the house I assume? Or did you get margin lending at that rate?

[baller18]

Can someone please answer this for me.
If they are making dividend payments of 13.4% and 7.4 - 8.9% in 2014, and we don't have to pay the final installment till 14th of may, doesn't it mean we are really purchasing these shares at roughly 90% of the book value price? Considering you get your dividend payments before your final installment payment for the shares...
Then if you take future dividend payments into account, the SP will really have to drop 15 - 20 % for you to lose any money...
Even if meridian cuts down the future dividend payments, say from 6 - 9 cents, we would get a cap rate of of the below. If bond rates were at 5.5

6 cents / 0.055 = $1.09
7 cents / 0.055 = $1.27
8 cents / 0.055 = $ 1.45
9 cents / 0.055 = $ 1.63

Meridian might noy be a growth stock by any means, but it seems quite attractive if my above calculations are right....

[robbo24]

I just got my firm allocation through DB...

[blockhead]

I just got my firm allocation through DB...


I think you could still be scaled back by up to 20% Robbo,...may not be of course but that is what DB's letter says

[percy]

against the house, but did not need a loan to purchase them just think I can use the banks money to make money and use cash for other investments.
Maybe you could call it low risk leveraging.

I think you have done the right thing.
Baller18's figures confirm.
ps thanks baller18 for the maths.

[CJ]

Question for those who have gone for a brokers allocation - why not just go for the general pool. My reading of the prospectus is you guys will get double scaled and I will get scaled less.

Eg. first scaled by your broker, then the brokers pool can actually be scaled as well and the prospectus advises the public pool will be scaled less than the brokers pools.

[robbo24]

I think you could still be scaled back by up to 20% Robbo,...may not be of course but that is what DB's letter says

They said the same thing about MRP ;)

[percy]

Question for those who have gone for a brokers allocation - why not just go for the general pool. My reading of the prospectus is you guys will get double scaled and I will get scaled less.

Eg. first scaled by your broker, then the brokers pool can actually be scaled as well and the prospectus advises the public pool will be scaled less than the brokers pools.

I find it a lot easier dealing with my broker at Craigs.

[baller18]

Hey guys, hae never participated in an IPO, so say If I applied for $10,000 worth of shares, got my mum to apply for $5000's worth, and there is scaling, how does it work?
Say if its scaled by 10%, does it mean both of us get scaled by 10% or only me because I'm after a larger amount? And my mum's amount doesn't get scaled

[CJ]

Say if its scaled by 10%, does it mean both of us get scaled by 10% or only me because I'm after a larger amount? And my mum's amount doesn't get scaledDepends - they can scale as they please and each different pool can have different scaling.. They could do a flat 10% off everyone. I think for MRP, the scaling only applied to purchases over $15k.

I expect it to be like MRP - they wont scale small M&D investors, only the bigger investors.

[baller18]

Depends - they can scale as they please and each different pool can have different scaling.. They could do a flat 10% off everyone. I think for MRP, the scaling only applied to purchases over $15k.

I expect it to be like MRP - they wont scale small M&D investors, only the bigger investors.

Thanks heaps CJ!!

[QOH]

I've been allocated the amount I asked for... not that it was a huge amount

[Wolf]

I'm planning on stagging Meridean.
Does anyone have any advice on stagging an ipo?? Or know of a book etc.
Is there a strategy for it? I watched the MRP and ZEL ipo's and noticed that it peaks then drops of a little bit at closing. Is there any technical analysis tools that can help determine the peak?

[Joshuatree]

Craigs have confirmed they will hold my allocation until after i have read NZX reports on thurs so no pressure.

[macduffy]

I'm planning on stagging Meridean.
Does anyone have any advice on stagging an ipo?? Or know of a book etc.
Is there a strategy for it? I watched the MRP and ZEL ipo's and noticed that it peaks then drops of a little bit at closing. Is there any technical analysis tools that can help determine the peak?

There's no book on stagging as far as I know and if there is I wouldn't be reading it! Actual experience on the day and immediately afterwards will depend on a variety of factors - the strength of demand beforehand; appeal to instos ( and whether or not the issue will be included in the various indices - which affects the degree of "must have" for various index and other funds - almost certainly will make the NZX50 pretty quickly; how satisfied those instos are at the IPO; the tone of comment from the press and brokers; random news events ranging from the political to the economic to the force of nature, etc.

In short, I wouldn't waste my time trying to second guess the market but would decide on a course of action beforehand, eg ride the market up, if it goes up, and sell when the trend reverses. That's if I was going to stag the issue - which I'm not!

And that's not advice, just an observation.

[Wolf]

Cheers Macduffy
I haven't stagged anything before just came into some cash and looking to take a punt before putting it in some other companys for the long term.
I'll have a decent look at those factors.
I'll probably hold and sell the second it dips, not interested in holding.
Agreed Moosie got a full allocation of ZEL and am stoked :)
Hopefully there's enough of a rise to get something out of it.

[minimoke]

I'm planning on stagging Meridean.
Does anyone have any advice on stagging an ipo??
Not advice but my general approach. First thing is I have to be comfortable that there will be a 15 percent gain on listing. It's not a hard and fast number but I am essentially looking at market sentiment pre listing. There was not enough strength in mrp so I wasn't in. I don't feel there is enough with meridian so I am not in. I plan on running with the market for three days. That means I watch pretty much every trade. I ride the rise over that time and once I get a sense there is a change in momentum I get ready to hit the sell button. A 5 percent dip off the high is about enough to do it.

[amalgam]

IMHO the only reason to stag a IPO is if one is very sure the share is going to rise after the listing

I am not sure there is that much interest in Meridian--its not very difficult to get a full allocation [if u want some]
So why will the share rise after listing?

The only people making money out of these are the brokers--on buying & selling

[macduffy]

IMHO the only reason to stag a IPO is if one is very sure the share is going to rise after the listing

I am not sure there is that much interest in Meridian--its not very difficult to get a full allocation [if u want some]
So why will the share rise after listing?

The only people making money out of these are the brokers--on buying & selling

That would probably be true if we knew that the investment funds etc (instos) were going to get their requirements filled at the IPO. Given the size of the IPO, there's little doubt that Meridian will quickly climb into the NZX50 where a number of funds, particularly index funds, will need to invest to an appropriate level.

[Daytr]

Spot on Iceman, Western World production of aluminium is stuffed. That 16M tons of new production is around 40% of current world consumption. The price ain't going no where until high cost & loss making operations in the West such as Tiwai is shut down. Will tax payers be willing to stump up more to keep this going in the future particularly when the main beneficiary after Southland is MRP is partially publicly owned? There may be a quick buck in this with the yield its offering there may be not, however the Government is irresponsible to float such an asset that is so reliant on another redundant one.


Have been studying various info on Aluminum smelters around the World. My reading of it is:
# Currently there are plans for around 35 new aluminum smelters worldwide
# 25 in Asia, 3 in Middle East, 4 in Europe /East Europe, 2 in Canada & 1 in Argentina
# Total production for all those at full production would be around 16 million tonnes p.a.
# Estimated electricity price in China & India is around USD 40/Mwh
# construction cost of India/China is around 1/3 of the Western World
# the average cost of electricity at the other planned smelters is around USD 20-25/Mwh
# First NZ Capital estimates new electricity contract with Tiwai at USD 39.4/Mwh

My conclusion is that, unless we get around 20% increase in aluminum prices and around 10% drop in FX for NZ$ against USD (both possible), Tiwai has no future. Shadbolt, prepare Southlanders for that happening, sooner rather than later.
BUT, from my reading of it, it will have only minimal impact on Meridian, CEN & MRP. The Labour/Green threat is the real issue here.

I really want to invest in Meridian. Think they have great assets, sustainable future dividends from very positive cashflow, but fear political changes.
For me the question is, do I put my money faithfully into Meridian or do I start liqidating NZ assets and move them off-shore fearing a Cunliffe takeover ?

[CJ]

Spot on Iceman, Western World production of aluminium is stuffed. That 16M tons of new production is around 40% of current world consumption. The price ain't going no where until high cost & loss making operations in the West such as Tiwai is shut down. Will tax payers be willing to stump up more to keep this going in the future particularly when the main beneficiary after Southland is MRP is partially publicly owned? There may be a quick buck in this with the yield its offering there may be not, however the Government is irresponsible to float such an asset that is so reliant on another redundant one.The Tiwai closure will only have a 2c impact on Meridian so not a real concern. I also read somewhere that Tiwai is about middle as far as costs go, so is by no means the first smelter to be closed.


missed icemand post, nice information, still the dividend and discount is set for the next 12 months so after that dump the stock....but in the mean time the discount stands and so does the dividends...But if everyone does this, and they all do it just before you, the price you sell at will be lower, eliminating the benefit of the higher yield.

[macduffy]

That depends on the assumption that loss of the subsidised Tiwai contract would be detrimental to Meridian as distinct from its effect on the NZ economy. We've seen good arguments made here that it would be the thermal generators such as Genesis that would be impacted as the cheaper Meridian Manapouri (hydro) power became available to the wider market. All depending on completion of the scheduled Transpower upgrades of course.

[Joshuatree]

Martin hawes rates meridian a good income play.

[iceman]

should be nothing stopping anyone else from getting cheap money, I went out and secured 18 months @ 5.6% to purchase Meridian shares.

Same here. Secured 18 months fixed term and interest only at 5.5%. Broker also confirmed my full application had been "reserved". So I will definitely be a Meridian shareholder.

[Stranger_Danger]

What a load of rubbish most investors wont know if they have a full allocation until after the offer close's.

Not if you have a firm allocation via your broker.

[Xerof]

Not if you have a firm allocation via your broker.

You can still be scaled by up to 20% on a firm allocation, after the bookbuild.

[Daytr]

If you think its efficient to push power the length of the country where the demand is then by all means be my guest. Put it this way if Tiwai didn't exist, is that where you would build a new power station?





That depends on the assumption that loss of the subsidised Tiwai contract would be detrimental to Meridian as distinct from its effect on the NZ economy. We've seen good arguments made here that it would be the thermal generators such as Genesis that would be impacted as the cheaper Meridian Manapouri (hydro) power became available to the wider market. All depending on completion of the scheduled Transpower upgrades of course.

[CAM]

If you think its efficient to push power the length of the country where the demand is then by all means be my guest. Put it this way if Tiwai didn't exist, is that where you would build a new power station?



That depends on the assumption that loss of the subsidised Tiwai contract would be detrimental to Meridian as distinct from its effect on the NZ economy. We've seen good arguments made here that it would be the thermal generators such as Genesis that would be impacted as the cheaper Meridian Manapouri (hydro) power became available to the wider market. All depending on completion of the scheduled Transpower upgrades of course.[/QUOTE]

It's not efficient.... But do you really think they will build a new power station near Auckland ?

[Stranger_Danger]

Your broker firm allocation can still get scaled after the book build ring your broker if you don't believe

Yep I know. But the scaling, I believe, has to be pro rata.

If you've had a firm allocation on a substantial amount, they can't just say "we gave you too much" when compared to someone else. They're going to have to scale everyone at the same percentage, up to 20% as you say.

Given the amounts involved, I think significant scaling at this point is highly unlikely - this is a big float for the market to absorb

[GTM 3442]

It's not efficient.... But do you really think they will build a new power station near Auckland ?[/QUOTE]

New Zealand's deep-pocketed conservation industry will not allow further large-scale electricity generation projects to proceed anywhere, CAM.

This seems to me to be something of a conundrum, as it is unclear where they will get the electricity needed to power their new, modern, clean, green, electric vehicles.

Time to eat another tin of baked beans and hook up the fart tube ?

[Joshuatree]

Morning star has a fair value of $1.75.

[CJ]

It's not efficient.... But do you really think they will build a new power station near Auckland ?of course not because it would have to be fossil fuel. Geothermal in the central north is the closest.

Re dams, the next ones to be built will be for irrigation.

I see more micro generation in the future - solar or small gas (where the heat can be utilised as well)

[BlackCross]

Morning star has a fair value of $1.75.

"The [Meridian] retail offer capped price of $1.60 is a modest discount to our fair value estimate [of $1.75 a share]," he said.
"We generally prefer to buy stocks at a larger discount to fair value and in Meridian's case, this would be around $1.50.

[CJ]

they have been trying to build an irrigation dam in Hawkes Bay for 15 years and are still trying to get past the Greenies.exactly - a sign of things to come. My point was we need more irrigation before we need more power.

[luigi]

Morningstar report here: http://www.interest.co.nz/sites/default/files/Morningstar-Meridian.pdf

[CJ]

Morningstar report here: http://www.interest.co.nz/sites/default/files/Morningstar-Meridian.pdfPage 5 is interesting. Based on the table, dont invest in MER, buy (in order) TPW, MRP, MER, CEN.

Will read the rest tonight.

[luigi]

Page 5 is interesting. Based on the table, dont invest in MER, buy (in order) TPW, MRP, MER, CEN.

Will read the rest tonight.

Page 5 is based on Morningstar's $1.75 fair value of MEL - given the retail price is capped at $1.60, the proposition is more favourable.

Overall, the report seems less comprehensive than the First NZ one, particularly in terms of valuing the different risks. They put very little likelihood on the Labour/Greens policy:

"We think it might take Labour (if it comes to power) at least four to five years to regulate the sector given the complexities involved in working out the regulatory asset base for each generation unit due to their differing ages and fuel types. Considering that elections are held every three years in New Zealand, we think the chance of regulation occurring during the next five years is remote."

Also, their DCF used a lower WACC (similar cost of equity, lower cost of debt).

[CJ]

Page 5 is based on Morningstar's $1.75 fair value of MEL - given the retail price is capped at $1.60, the proposition is more favourable.At $1.60, it is only a 10% discount to fair value wheras TPW and MRP are about a 20% discount to fair value (calculated by Morningstar - it looks like they are using the same $2.75 for MRP they issued prior to listing. I wonder if they re-reviewed?).

That is a good point re regulated asset based - they could probably put the legislation into place quickly but the court cases on regulated asset base would go on for years, even after the ComCom/Central regulator make their initial stab in the dark.

[percy]

exactly - a sign of things to come. My point was we need more irrigation before we need more power.

Maybe you will require electricity to power the irrigators?
I have heard some farmers are paying $50,000 monthly power bills.!

[CJ]

Maybe you will require electricity to power the irrigators?
I have heard some farmers are paying $50,000 monthly power bills.!True but chicken and egg.

[luigi]

More research from Woodward and TDB:

https://nzx.com/files/static/cms-documents/Woodward_Partners-Meridian_Energy-Equity_Research-20131001.pdf

http://www.tdb.co.nz/documents/reports/021013-TDB-meridian-energy-research-report.pdf

[Joshuatree]

Excellent, thanks for that luigi. DCF valuations re $1.81 to $1.93. Drought the biggest and most likely to happen risk.

[luigi]

Edison putting up $1.70-$1.86. All of the reports are now here: https://www.nzx.com/meridian-research

They put the Labour/Greens policy as knocking up to 70 cents/share off the valuation although state: "we think the probability of the NZ Power proposal being implemented to its full potential extent is low and that the offer price more than accounts for the current risk adjusted impact to MEL".

[Joshuatree]

Ive downscaled by two thirds to keep some funds free for ops.

[Beagle]

me thinks if the US goverment does not get thier **** together, well before the meridian offer close's, the meridian offer might be a complete flop.
Traditionally during US market down turns it has been the worst time to bring an IPO to the markets.
If this turmoil continue's maybe Mr Gaynor will get his christmas wish granted and pick up the IPO in meridian for $1.40.

Agree and nobody's talked about that up until you mentioned it and its a real risk that nobody seems to be factoring in. I rate First N.Z's research as better than anyone else and note they rate the company based on a comparitive PE basis to the other listed power companies at $1.43 - $1.60 but I don't agree with their risk assessment on either the smelter situation or Labour / Greens and believe they are materially underestimating the risks as i perceive them.
People are paying a PE of ~ 20 times in a zero growth industry with major risks of 41% of supply going to a smelter that's highly likely to close and when it does people seem to think it'll be easy to transfer that supply elsewhere, (something i'm not convinced of). Then we have the Labour Greens groundswell of support building on the fact that Mr Key stopped listening to average Joe Bloggs quite some time ago. All this against a background of real increases in electricity prices of circa 80% over the last decade to such an extent that many average families are struggling to pay their power bills and those that can are putting in efficient heat pumps and better insulation. Some think demand growth will get back to its long term trend after many years of zero growth, I am not convinced. New supply already in the pipeline coming on stream this year and next will further effect the present over-supply situation.

Too add insult to injury buying back an asset we as taxpayers already own feels like some sort of quassi taxation to me. I can see why people would look at this as an income stock but there are really serious risks with this stock, not the least of which is the timing of the float. I avoided the slow river power value destruction and will also sit this one out. My 2 cents.

[pietrade]

Thanks for your very lucid analysis of the prospects, relating to our buying our own stuff back, from an increasingly dictatorial 'government'.

The terrorists we should be afraid of - and protected against - are those out-of-touch public servants (!?) whose world no longer seems to encompass the NZ public - unless you have links to BIG business or Multi-nationals.

The destruction of our freedoms and way of life, is coming increasingly, from within with the robbers running the show.

[robbo24]

The destruction of our freedoms and way of life, is coming increasingly, from within with the robbers running the show.

I think there's a "Raised Garden Bed using Organic Compost and Recycled Wood" thread in the Investment Strategies section if you'd find that type of investment more ethically sound?

[PartyPooper]

With the current situation in the USA and what looks like an increasingly high chance Labour/Greens will take out the next election. I am having major second thoughts about Meridian. It looks great for 2 years of income. However I feel 2 years in DIL, RYM, PEB or SUM could net more in growth.

If its true Meridian will be hit hardest by the planned one buyer electricity model. I might wait, perfect buy in time would be Labour/greens winning election during a drought in south island. I feel even though most believe the policy would take 4-5 years to implement the SP would be hit hard on news that National wouldn't have the majority.

[biker]

I think the more small shareholders, as in the general public, get cold feet, the more the institutions will be smiling.
I wouldn't be surprised if the $1 instalment receipts list at a tidy premium.

Disc. I have been allocated quite a few so I'm biased.

[macduffy]

I'm inclined to agree, biker.

There are risks in all investments and we can always find reasons not to buy, but to have all the risks line up in a "perfect storm" against Meridian seems to be taking risk aversion a bit too far for an equity investment.

Disc: Taking a modest position.

[iceman]

I'm inclined to agree, biker.

There are risks in all investments and we can always find reasons not to buy, but to have all the risks line up in a "perfect storm" against Meridian seems to be taking risk aversion a bit too far for an equity investment.

Disc: Taking a modest position.

I share that sentiment. Meridian has got good assets that are providing some very good cashflow and despite the obvious risks, I am also taking a modest position, like I did with MRP. I should note though that I am not looking to trade but a long term hold with both..

[percy]

I'm inclined to agree, biker.

There are risks in all investments and we can always find reasons not to buy, but to have all the risks line up in a "perfect storm" against Meridian seems to be taking risk aversion a bit too far for an equity investment.

Disc: Taking a modest position.

I too agree with you and biker.
Sound assets at a reasonable price.
We are "well positioned."

[CJ]

Regarding the Labour/Greens policy, one has to remember that it was discredited by the very overseas economist that they were relying on as wonky economics. Key will slaughter them in the debates unless they change tack a bit.

You will also note they haven't said anything in the lead up to this IPO - they should be politiciking like hell as the media would give them lots of free publicity in the year before the election on a key National policy which is apparently very unpopular.

Disc: going in slightly bigger than I did for MRP in the hope of regaining a bit ("definition of insanity is doing the same thing over and over and expecting a different result")

[iceman]

I agree CJ that Labour/Green lack of comment about Meridian has been very notable by its absence ! It is definitely interesting.

[JAYAY]

I wonder if lack of comment form Labour/Greens means that they have realised they destructiveness of their policy and would be looking to backtrack on it if they win the election. Their policy could only be for the purpose maximising their share of the vote after which they simply would not implement it. Am I guilty of wishful thinking.

[macduffy]

Yes, perhaps the penny's dropped that tying a generator's returns to its costs will encourage and perpetuate those nasty fossil fuel burning stations!

[Xerof]

And a permanent loss of significant dividends to the Crown, read voters/taxpayers, as well as a huge writedown in the value of the 51% still owned by the Crown, read voters/taxpayers

[mouse]

I too agree with you and biker.
Sound assets at a reasonable price.
We are "well positioned."

The question that has to be asked is, what is the expected life of the Hydro system and what is the cost of generation using hydro.
The hydro consists of stored water, which can be switched on and off as required. Now That applies mostly to the water in the lakes. At the top of the system. I think you then get a certain amount of storage in the canals etc., but basically once the water starts flowing, its generating electricity. The water is not stored, it is used.
Ignore the wind farms. They are obviously cheap to build. But their economic life may well be only 20 years.
So, your conclusion Percy, of 'Sound Assetts at a Reasonable Price' is mine too. A long term hold with good dividends paid. Plus no 'buy' brokerage fees enables a modest investment to turn a profit even, plus we have the dividends.

[stanace]

Surely they realise that if the public buy up large in Meridian, just as they did in MRP, then when election time comes, nobody who bought either will vote for Labour, as this will affect the share price of both. It was a very poor move, and is a guarantee that Labour will lose the next election.
I have been thinking the same thing

[FarmerHamilton]

Surely they realise that if the public buy up large in Meridian, just as they did in MRP, then when election time comes, nobody who bought either will vote for Labour, as this will affect the share price of both. It was a very poor move, and is a guarantee that Labour will lose the next election.


I would guess that 75-80% minimum of the Mums & Dads who buy into privatisations are John Key voters anyway regardless of whether they are now a shareholder in Meridian or MRP.

In for 10,000 each for Mr & Mrs FH , allocation confirmed from ForBar . ( Thanks Synlait !! )

[Master98]

Surely they realise that if the public buy up large in Meridian, just as they did in MRP, then when election time comes, nobody who bought either will vote for Labour, as this will affect the share price of both. It was a very poor move, and is a guarantee that Labour will lose the next election.

me think any share holder( could be family members also) of electrity sector will not vote for labour.Labour party probably already realise this i guess.

[RTM]

I brought MRP and although a long term holder as we need the dividends, as with many have been disappointed with the price drop of around 10-12%. So trying to figure out how best to participate in the Meridian float. All in at IPO ? Or 50% in and keep 50% to buy post float, whether they go up or down. Or keep powder dry and invest at sometime in the future.

Trying to figure out a way to compare MRP with Meridian...and perhaps other power co's as well.

One approach I have been considering is to work out a market capitalisation price (share price x no. of shares): units of power capacity ratio. So some advice please. Does this seem a valid way to compare the companies ? I was thinking that if the Meridian ratio was say 10-12% lower than MRP ratio, then this might indicate that the price is about right. Assuming that Mr Market has now done a decent job of pricing the MRP company.

Any thoughts ? Or is this a waste of time ? Are there more meaningful ways to compare the two IPO's ?

Any help / thoughts appreciated.
Cheers
RTM.

[CJ]

MRP may have dropped 10% but you have had a 4% dividend in the meantime (my records show I'm down 6.8% from IPO).

Given it is a yield stock, I have focused on yield. Seem simplistic but I cant fault the thinking. The main question is whether the proposed yeild is sustainable.

Based on yield, Meridian is a good buy. Planning to send in my application this week.

[Beagle]

^^First N.Z. capital compared the power companies on a relative PE basis and came to the conclusion that on this basis Meridian is worth $1.43 - $1.60.

Those of you who are investing might want to note the U.S. Debt extension deadline is October 17, that's October 18 here and the deadline for applications is hand delivery to the registrar by 5.00 p.m. Friday 18th October.

If I thought this was a good investment I'd be waiting to see if the American situation is resolved in a satisfactory manner and then hand delivering my application. On the other hand, with all this international uncertainity maybe the book build price will be around where Bryan Gaynor thinks it ought to be $1.30 -$1.40. ?

[CJ]

First NZ valued it on a DCF basis at $2 (I would have to read again - and I will) but I think they thought this was the best metric to use as P/E isn't suitable for reasons they gave.

Given the range is $1.50+, I assume that means Gaynor wont be buy ANY, for ANY of his funds. If he does, then will the DIL one might have been BS, this would be market manipulation in my view.

[Beagle]

Their DCF valuation used a long term risk free rate of return of only 5% in their model. That might look pretty stupid in 18 months time when the American's have finished manipulating the long term rates.

A LOT of the assumptions in their valuation are matters I don't agree with, for example they are treating future Treaty of Waitangi issues as having no assessed impact on future cash flows. More meaningfully they assume smelter supply can be re-directed and a closure would only have a 2 cent impact on valuation.
WOW, I find that difficult to believe. 14% of the nation's supply comes to the market and it only affects the share price by 2 cents !!, okay, people can believe that if they like...

Relative PE to the other power companies is the best measure in my opinion and for a zero growth industry with what's hanging over them all with the Labour Greens risk...I think all the PE's in the sector look fully stretched and with potentially significant interest rate rises in the next few years we could see meaningful PE ratio contraction.

Gaynor's track record speaks for itself.

Projected dividend yield is the company's main attraction in my opinion...but you've got to wonder if this hasn't been window dressed to look attractive to the masses who are struggling to get 4% on their bank deposits.

Personally I think a stock like this with all its specific and industry risks in a zero growth industry with its present excess supply and potentially huge amounts of excess supply and in a rising interest rate environment deserves a PE ratio of an absolute maximum of 15 and even that's a real stretch which would mean I wouldn't pay a cent over $1.20.

For goodness sake you can buy good quality stocks like SKC with a dominant and protected position and real growth pontential on a PE of 18 without all the sector risk applicable to the electricity industry

[biker]

I brought MRP and although a long term holder as we need the dividends, as with many have been disappointed with the price drop of around 10-12%. So trying to figure out how best to participate in the Meridian float. All in at IPO ? Or 50% in and keep 50% to buy post float, whether they go up or down. Or keep powder dry and invest at sometime in the future.

Trying to figure out a way to compare MRP with Meridian...and perhaps other power co's as well.

One approach I have been considering is to work out a market capitalisation price (share price x no. of shares): units of power capacity ratio. So some advice please. Does this seem a valid way to compare the companies ? I was thinking that if the Meridian ratio was say 10-12% lower than MRP ratio, then this might indicate that the price is about right. Assuming that Mr Market has now done a decent job of pricing the MRP company.

Any thoughts ? Or is this a waste of time ? Are there more meaningful ways to compare the two IPO's ?

Any help / thoughts appreciated.
Cheers
RTM.

I think it is well recognised that the MRP IPO was poorly done and certainly my broker sees it that way. I bought heavily into the IPO and on listing day saw it peak ( 2.74 comes to mind) then start to retreat. With what I had at stake I didn't want a capital loss take away my dividend gain so I bailed out in the 2.60's.
It wouldn't surprise me if English et al when presented with the recommended IPO price, got greedy and added an increment to the recommendation.
With Meridian, I think they will want it to go a lot better, and politically will not want to appear incompetent financially, which they certainly will do if Meridian goes the way of MRP.
Part of this appearing competent will depend on reading the market at the time and pricing the IPO accordingly. This would have to include the current Tea Party debacle in Washington.
So, IMO you have to be into the IPO. The current situation could make it even more profitable.
Watch the market from the moment it lists and if things are not playing out as you would expect, hop out until the dust settles and get back in for an increased dividend play. I will be very surprised if the instalment receipts open showing an immediate loss.
But, all this IMHO and I have been wrong many times before!

Disc. Have applied for and been allocated quite a few so I'm biased.

[amalgam]

Their DCF valuation used a long term risk free rate of return of only 5% in their model. That might look pretty stupid in 18 months time when the American's have finished manipulating the long term rates.

A LOT of the assumptions in their valuation are matters I don't agree with, for example they are treating future Treaty of Waitangi issues as having no assessed impact on future cash flows. More meaningfully they assume smelter supply can be re-directed and a closure would only have a 2 cent impact on valuation.
WOW, I find that difficult to believe. 14% of the nation's supply comes to the market and it only affects the share price by 2 cents !!, okay, people can believe that if they like...

Relative PE to the other power companies is the best measure in my opinion and for a zero growth industry with what's hanging over them all with the Labour Greens risk...I think all the PE's in the sector look fully stretched and with potentially significant interest rate rises in the next few years we could see meaningful PE ratio contraction.

Gaynor's track record speaks for itself.

Projected dividend yield is the company's main attraction in my opinion...but you've got to wonder if this hasn't been window dressed to look attractive to the masses who are struggling to get 4% on their bank deposits.

Personally I think a stock like this with all its specific and industry risks in a zero growth industry with its present excess supply and potentially huge amounts of excess supply and in a rising interest rate environment deserves a PE ratio of an absolute maximum of 15 and even that's a real stretch which would mean I wouldn't pay a cent over $1.20.

For goodness sake you can buy good quality stocks like SKC with a dominant and protected position and real growth pontential on a PE of 18 without all the sector risk applicable to the electricity industry
Roger---what a great post

IMO the reason to buy shares is to increase ones wealth--& there are far better ways, even on an over valued NZ market, than these power companies.

[BlackCross]

Too intent on getting the very top price IMO. As a UK resident during the Thatcher years I partook in all their floats and always made a decent quick profit. Why? Because they always left something for the next man unlike NZ treasury who have a habit of seeking full value. Good for the taxpayer but not for us PIs.

As for initially paying out more than earnings as dividend - seems something of a come-on for mug punters to me.

[RTM]

Thanks all for the input.....Amalgam...some of us older folk while interested in increasing our wealth are perhaps as or more interested in having a decent dividend and protecting the capital against inflation. On balance, I think I will participate in the Meridian float as well.

In addition there is the probably misguided matter of trying to keep these assets in the hands of New Zealanders. Buggar JK for selling these assets.

Cheers
RTM

[Beagle]

Roger---what a great post

IMO the reason to buy shares is to increase ones wealth--& there are far better ways, even on an over valued NZ market, than these power companies.

You're most welcome. I hear this morning that Mighty River Power's board has announced that they have decided to buy back $50 million of its own shares. "Best use of shareholder funds", they claim LOL.
We all know the board is Govt controlled and if people can't see that both the timing of this announcement and the execution of the action itself isn't artifically contrived to help the Govt towards achieving its most optimum pricing on Meridian and Genesis then all I can say is there is none so blind as those that will not see.

Out of respect for those that have (for reasons best known to themselves) decided to invest in this company I won't comment further in this thread.

[Joshuatree]

So many folks with diff needs and investment styles.. I decreased my app because although i will enjoy the income , the thought of sitting on a passive low, no growth investment for so long just doesn't suit my style. Not a bad income stock though imo. And way better ethically and morally then say investing in a gambling company.

[Beagle]

Yes SKC is an objectionable stock to some, those that don't understand that well over 90% of the people that go to SKC's entertainment facilities have a good time. The small percentage who are addicted to casino gambling would probably be addicted to some other form of gambling or other addiction, horses, Keno, sports betting or dare I mention the national pass-time of wasting $20 plus a week by hundreds of thousands of households on lotto, which has a very poor payback ratio of less than 60%.

How many people do you know that waste $1,000 year plus on lotto, year in, year out and have never won a meaningful thing...meanwhile plenty of those same families are struggling to feed their kids breakfast in the morning, go figure...who's really sinning ?

[Joshuatree]

Whos really winning?

[Beagle]

Sharebrokers

[Under Surveillance]

How many people do you know that waste $1,000 year plus on lotto, year in, year out and have never won a meaningful thing...?

About as many as waste $4,000 a year plus on fags, and have won emphysema or lung cancer.

[Beagle]

About as many as waste $4,000 a year plus on fags, and have won emphysema or lung cancer.

Couldn't agree more i've been telling my two kids the same thing for years but they don't seem to listen. By the way, a pack a day which is a common sized addiction is now circa $7,000 a year, yet some people demonise Sky City as a sin stock, go figure...anyway back to market manipulation, maybe the Govt could convince the board of Air N.Z.to use their considerable cash reserves ($1 billion ?) to jack up the price of Mighty River Power too ? Pretty sure their Public relations spin doctors could come up with a perfectly valid reason why that's in everyone's best interests, opps did I really say that out loud LOL

[biker]

Casinos are designed for and make profits by, attracting losers. Doesn't sound like fun to me and not my sort of investment. I don't think sin comes into it. Just the fleecing of losers and to make money casinos must attract them.
SKC, although it has peripheral income would not survive without losers.

[RTM]

Sort of like the MRP IPO Biker ?
Cheers
RTM

[biker]

Sort of like the MRP IPO Biker ?
Cheers
RTM

Haha. Very droll :-) I buy my electricity from MRP and feel like I've been fleeced, but at least my money has bought something.

[Snoopy]

I decreased my app because although i will enjoy the income , the thought of sitting on a passive low, no growth investment for so long just doesn't suit my style. Not a bad income stock though imo. And way better ethically and morally then say investing in a gambling company.


I am not sure sure Meridian or any of the power companies are necessarily 'ethical' or 'moral'. Remember the sickness beneficiary in Auckland who died because her power,and hence oxygen machine were switched off? And what about the poor who freeze in their houses in winter and the accompanying sicknesses that result all because the greedy power companies charge so much for power, that in Meridian's case has no fuel cost?

However, something like a casino is entirely voluntary to enter. And SKC for example,have people and procedures to deal with problem gamblers. What other form of gambling can you say that about? There is no advantage long term for a casino to cajoule more money out of a customer then they can afford to lose. As far as I am aware, no-one has died on a casino floor at any Sky City establishment.

SNOOPY

[troyvdh]

Biker...my sentiments exactly...This issue was discussed a while back...Whats more a few years back I believe that SKC got an award for some sort of commerce brilliance...like how hard is it to fleece dosh of loosers and poor brown people...give me a break.

cheers troy

[Beagle]

I am not sure sure Meridian or any of the power companies are necessarily 'ethical' or 'moral'. Remember the sickness beneficiary in Auckland who died because her power,and hence oxygen machine were switched off? And what about the poor who freeze in their houses in winter and the accompanying sicknesses that result all because the greedy power companies charge so much for power, that in Meridian's case has no fuel cost?

However, something like a casino is entirely voluntary to enter. And SKC for example,have people and procedures to deal with problem gamblers. What other form of gambling can you say that about? There is no advantage long term for a casino to cajoule more money out of a customer then they can afford to lose. As far as I am aware, no-one has died on a casino floor at any Sky City establishment.

SNOOPY

Great post Snoopy. People are so quick to forget that their projected dividend returns are coming off the back of circa 80% real increases in the price of power in the last decade to the point where many tens of thousands of families can't afford to heat their homes properly. (Where's the ethical or moral aspect to that ?).
Bit of a scandal that we have some of the cheapest hydro generation in the world off the back of really plentiful average rainfall but our power prices are now about mid-point for the OECD ?. Wouldn't have anything to do with the Govt jacking up prices over the years so they could inflict a form of quassi taxation on the masses and then leverage those increases to flick the generators off, surely the Govt is not capable of such harsh ostensibly commercial behaviour !! You could easily make the case this is less moral than taking a small percentage win ratio off customers who chose to come into a casino after all people have little effective choice regarding power consumption. Which company is the greater sinner ?

[777]

quote ""Wouldn't have anything to do with the Govt jacking up prices over the years so they could flick the generators off, surely not !!""

Do you think Cunliffe would admit that?