Black Monday

[xafalcon]

Question for Hoop regarding NZ generators in relation to your post above

"rising bad debt levels as people without jobs struggle to pay on time or renters just quitting the property and shift leaving a bad debt..Failed companies or falling demand due to product surplus = fall in manufacturing output so less power used...The flow on effect is Utility companies announce lower profits lower dividends..some smaller Utility companies may fail putting the fear of God up the defensive Investors.....and so on...The end result is that Ultilities play catch up with the rest of the market and so are eventually mauled..."

With extra generation capacity required to be built by approx. 2019, where are you expecting to see the negative driver(s) coming from?

When I analyse your list I come up with

rising bad debt levels as people without jobs struggle to pay on time or renters just quitting the property and shift leaving a bad debt = very difficult in NZ to do this. Unless you own the property you have to give a bond, which limits the ability to "cut & run". Home owners less likely to default and have an asset that can be sold

Failed companies or falling demand due to product surplus = fall in manufacturing output so less power used. = plenty of other users to soak up any reduced usage at this point in time, new generation construction can be easily postponed = increased fcf

The only significant threat I see for NZ generators and their income stream and dividend payments is the closure of Tiwai Pt. This issue will be forced (either way) before any additional generation capacity is committed. With minimal over capacity at present, even total closure of Tiwai Pt probably won't represent a real threat to business viability, more a short term perturbation.

With government ownership of 51% of most power generators, comcom won't get involved (not that they have anything to get involved with, there is already plenty of competition)

Other positive power demand factors include

NZ has high immigration (1.3% population growth)

Business seems to be doing very well, according to NZIER. Many expanding

Low interest rates, stimulating consumer activity

New FTA export opportunities

Rampant tourism growth

I see the NZ power generators being in a very nice situation regardless of whatever the next 3-4 years may bring (short of a natural disaster/ foot & mouth, other extreme situation)

[JBmurc]

Was that Westpac?
We witnessed the Govt bail out to prevent the BNZ collapse during the the NZX 1990 bear market cycle


One thing is the banks always get looked after even if they have been operating outside the laws and get themselves in trouble you can expect them to be bailed out by the Gov (TAX payers) ..

Also a ban on short selling if the outlook starts to looks to bleak in the market ...I'm sure many Oil producers would like that support currently.....

And if free cashflow's come under pressure it's only a matter of lifting fees ...

[Ginger_steps_]

The only significant threat I see for NZ generators and their income stream and dividend payments is the closure of Tiwai Pt. This issue will be forced (either way) before any additional generation capacity is committed. With minimal over capacity at present, even total closure of Tiwai Pt probably won't represent a real threat to business viability, more a short term perturbation.

With government ownership of 51% of most power generators, comcom won't get involved (not that they have anything to get involved with, there is already plenty of competition)

The only threat???? How about solar!!! Why do you think the government has been selling off power assets?? One of my family members works as a senior project manager for a government owned power co. Recently he wrote a paper for them on future power demand.
Photovoltaics on the market are currently about 27% efficient and only capture limited spectrums of light. Photovoltaics already exist with 45% efficiency which capture almost all spectrums of light (rainy days, sunset etc). They have stated they will release those to market when they reach 50% efficiency. On top of this a german university has just designed a new Aluminium battery, using no new materials or new tech - it has not lost any efficiency after being cycled a few thousand times = lower equipment costs. Add in vehicle battery technology and super capacitor technology and we have the perfect storm for power companies expected to start in 5 years.
The cost of of solar currently sits at around 34-37cents per kilowatt - including installation and maintenance - marginally higher than grid power. In 5-7 years solar power is forecast to cost 7.5cents per kilowatt - including installation and maintenance!!!!!! People will be leaving the grid in hoards, power prices will skyrocket to compensate (not everyone can leave the grid) - which i guess to an extent means their income stream will degrade slowly. From where I am sitting solar has got to be the number 1 threat to power companies over the next decade.

[frostyboy]

xafalcon, your question is a strawman. Hoop was explaining the cycle with changes to growth rates, rather than the DCF components of NZX power companies.

[winner69]

You heavily invested in generators xafalcon?

As far as hoops comments go I do net that CEN share price halved during the last market collapse - while th fundamentals remained pretty OK

Disc. Know stuff all about these power companies.

[Jantar]

The only threat???? How about solar!!! .........
The cost of of solar currently sits at around 34-37cents per kilowatt - including installation and maintenance - marginally higher than grid power........

And here you have nicely demonstrated the fallacy of solar generation. Yes, the cost of solar generation is currently just over 30 c per kWh and dropping, so lets compare that to the cost of other types of generation.
Oil - 24 c per kWh
Gas turbine - 8 c per kWh
Gas CCGT - 6.5 c per kWh
Wind - 5 c per kWh
Hydro 1.5 c per kWh

When you say that solar is marginally higher than grid power, you are including the cost of transmission, distribution and security in the price of grid power. This is only correct if all solar power is directly replacing grid power without exporting any over generation from solar. As soon as you require a grid connection then that comparison is lost.

[xafalcon]

You heavily invested in generators xafalcon?

In the NZ generators I currently have some very recent exposure to CEN and longer term with GNE. SP for both still on the right side of my purchase prices, and 6-month reports out next month. But looking for alternative views to my own, so I can sense-check my logic for retaining or selling. Hoop seems to have a different view of the NZ generators, and I'm wanting to understand why. I'm definitely not a TA analyst, so there may be something there that alters my view of future overall performance (SP and dividend) of the NZ generators

As always, I try and learn from people with different views/opinions to get the best outcome

[Jantar]

I am another one who is in quite deep in the energy market. Energy shares make up around 50% of my portfolio. Currently holding CEN, GNE, IFT, MEL, and NWF.
I know, someone is going to tell me that IFT is not an energy share, and strictly speaking that is true. However they are heavily exposed in the energy market through TPW.

No longer holding VCT, and not interested in MRP.

[skid]

Question for Hoop regarding NZ generators in relation to your post above

"rising bad debt levels as people without jobs struggle to pay on time or renters just quitting the property and shift leaving a bad debt..Failed companies or falling demand due to product surplus = fall in manufacturing output so less power used...The flow on effect is Utility companies announce lower profits lower dividends..some smaller Utility companies may fail putting the fear of God up the defensive Investors.....and so on...The end result is that Ultilities play catch up with the rest of the market and so are eventually mauled..."

With extra generation capacity required to be built by approx. 2019, where are you expecting to see the negative driver(s) coming from?

When I analyse your list I come up with

rising bad debt levels as people without jobs struggle to pay on time or renters just quitting the property and shift leaving a bad debt = very difficult in NZ to do this. Unless you own the property you have to give a bond, which limits the ability to "cut & run". Home owners less likely to default and have an asset that can be sold

Failed companies or falling demand due to product surplus = fall in manufacturing output so less power used. = plenty of other users to soak up any reduced usage at this point in time, new generation construction can be easily postponed = increased fcf

The only significant threat I see for NZ generators and their income stream and dividend payments is the closure of Tiwai Pt. This issue will be forced (either way) before any additional generation capacity is committed. With minimal over capacity at present, even total closure of Tiwai Pt probably won't represent a real threat to business viability, more a short term perturbation.

With government ownership of 51% of most power generators, comcom won't get involved (not that they have anything to get involved with, there is already plenty of competition)

Other positive power demand factors include

NZ has high immigration (1.3% population growth)

Business seems to be doing very well, according to NZIER. Many expanding

Low interest rates, stimulating consumer activity

New FTA export opportunities

Rampant tourism growth

I see the NZ power generators being in a very nice situation regardless of whatever the next 3-4 years may bring (short of a natural disaster/ foot & mouth, other extreme situation)

Im afraid your assumption about bond covering bad debts for a rental is in most cases pretty far off the mark--you will almost always be left in the hole with a bad tenant--It takes time to get rid of a tenant,even if they have broken the tenancy agreement.

In terms of shares,all you have to do is look at the charts of any share you wish during the GFC.

China seems happy that their GNP results are not worse than expected so that should calm markets ..for now

[Jantar]

Im afraid your assumption about bond covering bad debts for a rental is in most cases pretty far off the mark--you will almost always be left in the hole with a bad tenant--It takes time to get rid of a tenant,even if they have broken the tenancy agreement......

As far as electricity supply is concerned, a tenant who has a bad debt with one energy company will struggle to get credit with another. Instead they will be offered prepay electricity, so bad debts are very low.