MEL - Meridian Energy

[Food4Thought]

Debt deal sorted (for now) so hopefully that will put peoples minds at ease....

http://www.marketwatch.com/story/con...eal-2013-10-16

Thanks Tumeric! Great news, just what I wanted to read this morning.

[percy]

Debt deal sorted (for now) so hopefully that will put peoples minds at ease....

http://www.marketwatch.com/story/con...eal-2013-10-16

Thank goodness.
I was getting a bit scared,as I am fully invested in the market at present.

[Beagle]

Retail investors WILL always be at a disadvantage.

Thankfully the American's have kicked the can down the road, (papered over the huge cracks in their system FOR NOW), so in the case of this float for people who are still deciding one way or the other, and taking into account the retail price cap this float appears to be an exception to the rule mate.
There's always the odd exception I've tried to like this float, I really have but the older I get the more I tend to take a five year minimum investment time horizon, I ask myself how is a company going to be positioned in five years time, where will the share price be ?
I guess we all have different investment objectives, some are chasing investment yield, I'm chasing growth, although am happy to take divvy's along the way. I think this will be a reasonable investment from a dividend yield perspective but capital gain when the price earnings ratio is already so heavily stretched, (as are power prices), will be very modest, if any.

[Snoopy]

I've tried to like this float, I really have but the older I get the more I tend to take a five year minimum investment time horizon, I ask myself how is a company going to be positioned in five years time, where will the share price be ?
I guess we all have different investment objectives, some are chasing investment yield, I'm chasing growth, although am happy to take divvy's along the way. I think this will be a reasonable investment from a dividend yield perspective but capital gain when the price earnings ratio is already so heavily stretched, (as are power prices), will be very modest, if any.

I've been humming and harring about Meridian too Roger. The decision is not totally clear cut but I have come to the same conclusion as you. The tipping point came with Grant King's Chairman's (of Contact) speech at the Contact AGM on Tuesday. Now I've never heard a chairman stand up at at AGM and forecast a decrease in revenues, still haven't. But King all of did that at the Contact AGM, forecasting zero growth in revenue for several years. Translated that means a decrease. The supply/demand balance for energy in NZ is now on the side of supply. So to be smart energy company, you have to rely on managing costs. Are Meridian up to it?

To answer that question look at what Mighty River have done since becoming an SOE. Now 40% of their generation capacity is geothermal, unaffected by weather. There is one gas powered station in the portfolio, a back up should things get tight. And Mighty River have had a policy of purchasing the surplus energy they need in a declining overall energy demand pool - smart.

Now what have Meridian done since becoming an SOE? Built a few wind farms, OK but those have only about 1/3 the reliability of geothermal energy. Meridian have a policy of running some of their transformer's until they fail to cut costs - not a forward looking policy in my terms. And Meridian still clearly have excess generation capacity for their customer base, not so good if the overall market is static or declining. I don't think Meridian have done anything desperately 'wrong' as such. But they haven't seized the opportunity like Mighty River Power has.

Furthermore if the smelter winds down, Meridian's power generation is in the wrong part of the country. Those hydro assets have another political liability. Meridian will suffer most of the 'big five' under a Labour/Green single power buyer model, because they have the highest proportion of hydro assets in the generation portfolio.

Now we move onto the installment receipt concept. Some here have picked a Meridian total float price of $1.60, with as a result no discount for Mum and Dad investors with $1 down and 60c in 15 months time. With the American debt situation unsettling foreign buyers, I believe this may not be far from the mark. Installment receipts are notoriously volatile. The Labour/Green policy will reportedly drop the value of each MRP share by 70c according to one view. In installment receipt terms that means your installment receipt will drop from $1 to 30c. No I don't think that will happen. But I am almost certain that some time in the next fifteen moths, after a strong Labour/Green poll, the IR price will drop to 80c. It will probably be a brief fall at that price, but this is what I would be eyeing as my entry point. Even if the total float price is $1.80, with $1 deposit, by biding my time I should be able to buy in at $1.40 total if I get my IR timing right. I very much doubt the float price will be above $1.80, which means there is no hurry to get in on the ground floor of Meridian.

Now move onto the overall return. Meridian would yield around 8% gross, with a 10.5cps payout, the mismatch in the maths because such a dividend will only be partially imputed. Actual earnings per share are forecast to rise to 7.2cps in FY2015, which is equivalent to a 6.7% gross profit at $1.60. Not very exciting in a climate of rising interest rates. The magic of being able to pay out more of your than your earnings in dividends for several years is because of the depreciation policy and past upward revision of dam values in a 'mark to market exercise'. But ultimately this policy is not sustainable even if the ultimately bit could extend out a decade or more. I expected some explanation of this in the prospectus, but there is nothing mentioned on depreciation policy - a serious omission in my judgement.

In summary, I think those who apply for Meridian installment receipts will probably do OK, better than bank interest at least. But I can't see the value there, and there are more nimble power companies in the market. At $2.16 and offering fully imputed dividends and with a coherent cost reduction strategy, plus the promised capital return via buyback MRP looks both cheaper, better strategically placed, and better managed than MER at $1.60. In the head for head comparison, MER are ahead on dividend yield, thanks to the Installment Receipt structure only (financial engineering for float purposes). On every other metric MRP is better, including yield on a fully paid up comparison. I will be keeping my money with MRP.

SNOOPY

[percy]

I have driven from Wanaka to Twizel today.
More and more huge irrigators.
Irrigation is growing,and has a lot more growing to do for a number of years yet in Otago,and Canterbury.
Meridian are situated to capture this growth.I think a lot of these irrigators use $50,000 of power a month.It would take our household 25 years to use what these irrigators use in one month.
Looks to me as though Meridian is "well positioned."

[Snoopy]

I have driven from Wanaka to Twizel today.
More and more huge irrigators.
Irrigation is growing,and has a lot more growing to do for a number of years yet in Otago,and Canterbury.
Meridian are situated to capture this growth.I think a lot of these irrigators use $50,000 of power a month.It would take our household 25 years to use what these irrigators use in one month.
Looks to me as though Meridian is "well positioned."

Percy the Manapouri power station can supply enough power for all of Wellington twice over. Just how many irrigators do you expect will be added?

SNOOPY

[percy]

Percy the Manapouri power station can supply enough power for all of Wellington twice over. Just how many irrigators do you expect will be added?

SNOOPY

I do not have the figures.I read the out look for dairy farm and other irrigation uses in a prospectus issued by Tru-Test last December.I have since given away my Tru-Test file,so can not refer to it.So here goes from memory.About a 33% or 50% more than is in use at present.So growth is Huge.
These irrigators are more than a kilometre long.

[GR8DAY]

i'm in. Just applied now - was waiting for confirmation the us situation had been sorted.

...snap tumeric......hope we didnt leave it too late. I had a good sized firm allocation and grabbed the lot......so now we sit back, wait and.......pray??

[BlackCross]

Insties looking for a 1.50 to 1.55 price.

Although Meridian was a good business with some attractions, "I'm not too worried about what we get," said another fund manager. ''We've got plenty of opportunities in the sector. ''I find it fascinating in these processes, the hype trying to stampede you into action from a fear of missing out.''

http://tvnz.co.nz/business-news/low-...shares-5646861

[Marilyn Munroe]

Meridian have a policy of running some of their transformer's until they fail to cut costs

SNOOPY

The demarcation point between the generators equipment and Transpower equipment is on the upstream side of the transformers. So if a transformer flashes over Transpower fixes it and pays the costs.

I'm with you Snoopy I reckon MRP is a better bet. I like MRP's geothermal capacity especially as it is not affected by climatic conditions. Also it has better distribution, its factories(power stations) are close to the center of demand(Auckland). An electron energized 600 feet underground way down south in Fiordland will be puffed by the time it gets to Auckland.

Boop boop de do

Marilyn