MEL - Meridian Energy

[luigi]

Morningstar report here: http://www.interest.co.nz/sites/defa...r-Meridian.pdf

[CJ]

Morningstar report here: http://www.interest.co.nz/sites/defa...r-Meridian.pdf

Page 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-doc...h-20131001.pdf

http://www.tdb.co.nz/documents/repor...rch-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.