The Death of Utilities in NZ

[bull....]

An interesting observation of utilities in NZ shows that a composite index of Utilities listed on the NZX actually peaked in May 2013, while the current peak of the index 50 is november.
Why has this occurred? If you go back Sky city has been threatened with regulation, Sky TV is under threat from regulation fast forward to April labour/greens announced there Electricity reform proposal, now we have the chorus carry on.
Clearly it can be seen that utilities in NZ are no longer viewed as safe investments, this is reflected in the underperformance of the composite index compared to both the NZ50 and the Dow Utilities index.
My guess is that overseas investors in particular do not see NZ as a safe environment for investment in Utilities anymore and the composite chart of utilities suggests much more downside to come heading into next year.


Security Name

Close

1 Month

3 Month

6 Month

12 Month

24 Month



NZ50

4794.95

-2.3378

5.5931

6.2864

18.3912

46.6251












VCT.nz

2.65

1.5326

-2.9304

-9.2466

1.145

4.7431



TPW.nz

6.55

-5.0725

-7.7465

-12.5501

-22.0238

-7.0922



CEN.nz

4.8

-8.5714

-9.434

-6.9767

-9.7744

-5.5118



MRP.NZ

2.1

-5.8296

-5.8296

-12.5














SKC.nz

3.71

-4.6273

-4.6273

-11.4558

-0.8021

9.7633












TEL.nz

2.3

-2.1277

0.8772

-0.4329

-0.4329

13.3005



CNU.nz

1.52

-42.6415

-47.7663

-38.9558

-55.2941

-53.7994












IFT.nz

2.4

-4

0.8403

5.2632

3.0043

32.5967



SKT.nz

5.65

-8.871

0.1773

-3.4188

7.2106

3.6697



AIA.nz

3.52

2.6239

14.2857

16.9435

31.3433

50.4274



NTH.nz

2.93

2.807

8.1181

-0.678

31.982

95.3333



POT.nz

13.42

-2.7536

-8.3959

-6.0882

1.6667

38.3505



NZR.nz

2.3

2.2222

0.4367

4.5455

-16.0584

-26.9841












NEW ZEALAND

4794.311

-0.0133

0.2432

7.9758

17.8974

46.4041



Composite

4.1423

-5.3769

-5.8402

-6.4129





correlation 77%








Dow Utilities

487.13

-2.5487

1.9378

1.0308

7.269

8.5309

[Goldstein]

Interesting post Bull. Did you make up this index? If so what weighting did you use for each stock, market cap?

I guess in NZ single events have a big impact.

[bull....]

hey goldstein its a price weighted index which includes volume as well.
The dow jones is calculated price wise I believe, although most other index's are cap weighted

[Harvey Specter]

Alot of old retired people who rely on boring old utility stocks for steady income and capital protection have been hurt in the last year.

I was in the process of reducing my reliance on utilities but they still form the foundation of my portfolio so has hurt me alot too.

[gv1]

Ah well, you don't have to worry abot GCT .

[Goldstein]

Alot of old retired people who rely on boring old utility stocks for steady income and capital protection have been hurt in the last year.

I was in the process of reducing my reliance on utilities but they still form the foundation of my portfolio so has hurt me alot too.

Yes, I've mentioned before I don't think this has been the right time for the Govt to partially sell the generating SOEs. It's a bit difficult to jusge where the index would have been if we didn't have:
1. Chorus debacle
2. Rio Tinto
3. Labour/Greens wanting to re-regulate the energy market.

The biggest thing in my mind is that the energy sector is so reliant on a big user.

Be interesting if you could push the analysis back a bit Bull to see how your utility index is doing historically. We may be entering a buy phase for utilities.

[Harvey Specter]

1. Chorus debacle
2. Rio Tinto
3. Labour/Greens wanting to re-regulate the energy market.Lest we forget:
4. VCT on credit watch due to regulatory uncertainty. They have been in the courts for years with the ComCom
5. SKT under constant rumor that it should be regulated or its monopoly on programming broken
6. SKC being constantly attacked for just being itself (a parasitic leach on society - there view not mine)
7. AIA seems to have got through its pricing but Wellington Airport (IFT) is always in the gun

[Goldstein]

Lest we forget:
4. VCT on credit watch due to regulatory uncertainty. They have been in the courts for years with the ComCom
5. SKT under constant rumor that it should be regulated or its monopoly on programming broken
6. SKC being constantly attacked for just being itself (a parasitic leach on society - there view not mine)
7. AIA seems to have got through its pricing but Wellington Airport (IFT) is always in the gun

Yes, good point. So is the sector stuffed or are we moving into a cyclical low?

[troyvdh]

Dear Bull....ive heard from a variety of commentators (we all probably have) state/say that in all likelihood the proposals outlined by the "left" will not/cannot occur i.e. power companies under an "umbrella" and "bybacks".

Remember that Cunliffe is very careful in what he says.

Cheers.

PS ....just thinking out aloud....in other countries where the admin has swung to the left or right have utilities suffered a similar fate ? Permanent or temporary ?

[bull....]

troyvdh i dont think you will find investors waiting around to see if perception turns into reality ( remember the market hates uncertainty )

[Beagle]

troyvdh i dont think you will find investors waiting around to see if perception turns into reality ( remember the market hates uncertainty )
Agree. When Rio Tinto pulls the plug on the refinery we will have an even bigger glut of power further exacerbating the sharp trend downward in wholesale power prices so anyone thinking their power utility is a safe place for steady reliable income will soon have a dividend shock to rub salt into their wound of capital loss, that's if Labour and the Greens don't muddy the water dramatically beforehand.

Why anyone would want to be in this space is something I cannot figure but good luck to you if you are.

[Leftfield]

Agree. When Rio Tinto pulls the plug on the refinery we will have an even bigger glut of power further exacerbating the sharp trend downward in wholesale power prices so anyone thinking their power utility is a safe place for steady reliable income will soon have a dividend shock to rub salt into their wound of capital loss, that's if Labour and the Greens don't muddy the water dramatically beforehand.

Why anyone would want to be in this space is something I cannot figure but good luck to you if you are.

Totally agree.... every investor must continually evaluate their portfolio. Constant change is the only certainty.
Work with the trends, not against them. CNU and DIL are other examples. Much better to be waiting cashed up in the sidelines than being caught in a downward spiral. With your cash out, you will be better equipped to chase better opportunities.

[modandm]

Threat of solar.

Not the cause of underperformance so far - but a real threat on the horizon. Bernstein put out some recent research which identified NZ and Australia as countries where large scale solar is close to being competitive (without subsidy).

The falling costs and rising efficiencies of panels could dramatically shift the playing field on leveraged utilities - and cause real pain. For corporates and manufacturers who are prime users of electricity solar installations could be huge. One of the key benefits of solar is that once they go up they require no maintenance. Solar at home is still a way away, but if peak time (daytime) consumption can be supplied by solar, the industry will be quickly be a situation of overcapacity.

I would say to people in NZ - beware the risks of the power-cos. Your future dividends are less safe than you think!