MEL - Meridian Energy

[Arbroath]

50c to pay on a share in 18 months in my mind makes it effectively worth more that 50c today. It is a payment to be made, not money to be received, in 18 months, so in effect PV is greater? Interest free money loaned today must be worth more than when it must be paid back in 18 months

Sorry Biker but CJ's approach is the correct one as to valuation. The 50c liability in 18 months is only worth 45c today so Meridian is trading as worth $1.55 or thereabouts.

Think of it like this - if you have to pay me 50c in 18 months how much would I accept if you were to settle the debt now = c. 45c as I can then invest that 45c and it would be worth 50c in 18 months time.

[CJ]

50c to pay on a share in 18 months in my mind makes it effectively worth more that 50c today. It is a payment to be made, not money to be received, in 18 months, so in effect PV is greater? Interest free money loaned today must be worth more than when it must be paid back in 18 months

You need 45c now to make payment of 50c in 1 years time.

I think what you are saying is you get the benefit of that 50c for 18m but that benefit should be factored into the value of the IR. So if I had to pay 50c today rather than in 18 months, I would only pay 1.05 for the IR, not $1.10.

Can anyone else confirm bikers or my logic? EDIT - thanks Arbroath

[J R Ewing]

Well I'm still whinging my money was taken out on October 10th, and I just had a look at my account and it hasn't been refunded yet. it's an ANZ account so not some obscure place they had to refund it to.

That is almost certainly an ANZ issue rather than a Meridian one - ANZ had problems last night http://www.stuff.co.nz/business/indu...-bank-payments

[minimoke]

So what about another factor. At the moment the. 50 is an outstanding debt and is 1/3 rd the listing value. Let's just say labour gets in at next election and the CA tanks to 0.50. Your debt is now 50% of the value. Would this change your valuation?

[blackcap]

I think people are making the mistake of trying to value MEL starting with the installment receipts. What you need to do is start with MEL the company and give the entity a valuation. Say $1.50 for arguments sake. Then try and work out for yourself what an installment receipt is worth. Now if the company is worth $1.50 in your eyes you see that you need to pay 50 cents in 18 months time. So what are you prepared to pay now for this installment receipt that effectively is a call option on the MEL share. Ok if I pay $1.00 +.50 = $1.50, I pay nothing for the 50 cents that I have effectively borrowed. So I am prepared to pay a bit more than $1.00 for my option. So I work out what this 50 cents is worth to me in the 18 months that I do not have to use it. I could bank this 50 cents at say 6% (mortgage interest rate seems appropriate enough) for 18 months and in todays dollars this is worth roughly 5 cents. So I am prepared to pay up to $1.05 for my installment receipt if I value the MEL entity at $1.50.
There are off course other factors at play but basically this is why the MELCA at 1.10 values MEL at roughly $1.55!

[CJ]

There are off course other factors at play but basically this is why the MELCA at 1.10 values MEL at roughly $1.55!

Agree completely with your approach. (though I disagree with the use of the term 'call option' since it is a requirement, not an option)

The question therefore is what is the correct value for the share, not the installment.

So what about another factor. At the moment the. 50 is an outstanding debt and is 1/3 rd the listing value. Let's just say labour gets in at next election and the CA tanks to 0.50. Your debt is now 50% of the value. Would this change your valuation?

Based on your fact scenario, the value of the share is only $1 due to Labour being in power, so working out the value of the IR from there, it is valued at ~50c since you still have 50c to pay.

[biker]

I think people are making the mistake of trying to value MEL starting with the installment receipts.....................basically this is why the MELCA at 1.10 values MEL at roughly $1.55!

Thanks Blackcap. Your post put it well. After thinking about it after my last post I had come up with similar reasoning but not as elegantly.
Thanks too Arbroath and CJ.

[blackcap]

Agree completely with your approach. (though I disagree with the use of the term 'call option' since it is a requirement, not an option)

T.

Thats right, it is a requirement isnt it. But what would happen if the MELCA's trade at under 0 cents then? Would you really pay up if the installment receipts "expired out of the money". Can anyone help as to what really would happen in this unlikely scenario?

Or do MEL come around with the debt collectors?

I do remember the old USB warrants on AIR, TEL etc would roll over into new ones with a lower "strike price" but yeah effectively you still had to pay up.

[CJ]

Or do MEL come around with the debt collectors?

NOt sure if it is MEL or the Govt but some one does. If you dont exercise, they will sell on your behalf and then seek any shortfall from you. I guess this comes into play only if the IR trade below 50c as otherwise, they will recoup enough from the sale of the IR.

[QOH]

I remember the last lot of Infratil warrants I had, they just lapsed, were never offered to me at a cheaper price.