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.