MEL - Meridian Energy

[Beagle]

Thanks Beagle. Craigs rate Meridian and Contact as their top stocks in this area. About GNE, would the price drop after 2 April since it has paid the divvy? As bond proxies would it be true to say that electricity stocks have more growth therefore a better buy than the property stocks?

Thanks for where Craigs see it, (2 out of 3 for me isn't bad). Yes price will probably drop by the dividend amount on the day it goes ex but in most cases the dividend paid is recovered fairly promptly in the share price after that, usually with a few weeks if not earlier. I have looked into this and believe if one is buying one is always best to buy cum dividend a few weeks before a stock goes ex divvy and if one is selling sell on an ex dividend basis a few weeks after a dividend, all other factors being equal. MEL and CEN had very strong runs these last few weeks. GNE, less so and could be due for some relative outperformance relative to its peers.

Property stocks v Gentailers as a bond proxy. I think the converse is probably true. If one normalises the unusual demand this summer caused by the prolonged dry hot spell, (extra demand by air conditioning systems and irrigations systems) national electricity demand is generally flat and only moving in line with population growth. On the other hand many of the leases that the property companies have, have annual or bi annual ratchet clauses such that rent goes up by x % per annum or the market rate, whichever is the greater. x is often 2-3% per annum compounding. ARG is PIE, (portfolio investment entity), net yield at $1.24 is just on 5%, (gross effective yield for those on a 33% tax rate) is 7.5% per annum. I bought some more ARG last Friday, nice safe boring dependable yield. Boring is good

[Snoopy]

I am looking to park some money and using the electricity sector as a bond proxy. Is meridian the best of the best in this sector?

A couple of important details are missing from your question voltage.

1/ How long are you looking to park your money for?
2/ If you are truly looking for a bond proxy, why are you looking at putting all your money just into one electricity sector company?

I am also using the electricity sector as a 'bond proxy'. But my own time frame is indefinite. By that, I mean there is no particular time frame in which I need the capital I have tied up in NZ Gentailers. I may adjust my holdings from time to time as part of a portfolio re-balancing exercise, But I don't expect to ever sell out completely, as long as I remain a power customer in NZ at least!

The purpose of having bonds in an investment portfolio IMO is to provide a predictable, and higher than cash rate, income stream with relative capital stability. If you are using Gentailers as a bond proxy I think you need more than one. That will reduce any one company specific issues causing a dent in your future income stream or capital. In my case I have chosen to invest in Mercury Energy and Contact Energy. I think they make a good pair, because Mercury tends to benefit from high rainfall in the North Island around Taupo, and the Wajkato River catchment. And Contact benefits from high snow melt in the Clutha River catchment in the lower South Island. Generally the peak river flows available in the Waikato and Clutha catchments do not co-incide. This means it is unlikely I will ever get an 'optimum return' from my 'Gentailer portfolio'. But it does mean I don't have to guess what the weather will be doing to optimize my return either. And generally I would not regard trying to forecast the weather to secure your investment returns as something you should try to do, if creating a bond substitute share portfolio is your purpose.

I see Contact and Mercury as a kind of 'hedge against each other'. I see holding both a good way to smooth my 'gentailer portfolio' returns. And as an electricity retail customer I see my electricity sector dividends as a way to hedge against my own power bills in the future. At the moment I am a Contact Energy retail customer, although I wouldn't necessarily look to be a shareholder in the company I buy electricity from. I would still see myself 'hedged' if I swapped over to Meridian for my power supply for example.

If you are looking to park your money for up to a couple of years, I would stick it in the bank, and stomach the lower interest returns. I think there is every chance that all Gentailers could fall significantly from current levels. If the Reserve Bank even looks like raising interest rates. It might take many years to get such capital lost back by accumulating dividends.

SNOOPY

[Beagle]

Good post and one could add GNE with its different generation profile for better diversification.
For my money I see ultra low interest rates prevailing for this year and most of the next decade if not all of it. I will also be holding indefinitely.

[bull....]

im holding gentailers too for income , agree low interest rates for yrs. gentailers pay good reliable income mel,cen,mcy and gne all good but think gne with its 8.4% yield as the standout

[Snoopy]

Good post and one could add GNE with its different generation profile for better diversification.
For my money I see ultra low interest rates prevailing for this year and most of the next decade if not all of it. I will also be holding indefinitely.

I did have a small holding in Genesis Energy that I had held since the partial float. I ended up selling out at $2.10 (at $2.95 today I have missed out on a +40% share price rise plus dividends since) two and a bit years ago. I reallocated much of that money into Contact Energy at $4.75 (At $6.60 today I am up +39% plus dividends since then). So far then, I may as well have not bothered switching over those shares. However Meridian , Mercury and Contact all have substantial renewable generation assets whereas Genesis only has a modest hydro generating capacity by comparison. Huntly, Genesis's biggest station is aging and the Rankine units have only 4-5 years of generating life left maximum without substantial capital expenditure and replacement. Renewable generation assets can be revalued as power prices rise. At that means new power stations can be built from borrowings without raising new capital from shareholders. I don't think Genesis will be able to 'build a new Huntley' by just revaluing their existing renewable generation assets. If Huntly is not rebuilt, then Genesis could end up being a much smaller industry player than it is now. For this reason I favour the other big three gentailers: Meridian, Contact and Mercury. IMO, there is good reason for Genesis to trade on a higher yield than the other three.

SNOOPY

[Beagle]

Fair enough Snoopy. I would like to think there's a reason GNE have committed to no more coal by 2030 and they will find a way to squeeze many more years of life out of those aging Rankine units but this may simply be wishful thinking.

[Snoopy]

Fair enough Snoopy. I would like to think there's a reason GNE have committed to no more coal by 2030 and they will find a way to squeeze many more years of life out of those aging Rankine units but this may simply be wishful thinking.

Jantar has told us that the Huntly boilers that fuel the Rankine units are aging, and that they are built into the structure of the buildings that encase them. Major capex would be required to re-mediate the situation for operation beyond another 4-5 years.

SNOOPY

[Beagle]

Thank you, yes I read his post. I take everything I read on here with a grain of salt and please, this post is not intended to offend anyone.
If anyone has a link to information supportive of that view as presented by the company itself I am all ears. In the meantime this doesn't look too shabby to me
http://nzx-prod-s7fsd7f98s.s3-websit...408/290004.pdf
GNE current trading and bid at an all time high of $2.97...can't be too shabby eh Snoops ?

[bull....]

mercury has its issues too , just in the maoris are taking over mercury power stations lol

South Waikato iwi advances treaty claim on sites of Mercury dam, power stations

https://www.nzherald.co.nz/business/...ectid=12215979


so mel is my top pick and gne for top yield and gne is got a wind farm with tlt coming on line so they are building up generation. both dont have too woory about maori claims either

[macduffy]

I already held CEN when the great gentailer privatisation started in eanest and bought each of the others as they listed. So I'm covering the field - except for Trustpower - but adding a few GNE from time to time. Plus further exposure to TLT via IFT!