One weather event winter does not a cash cow make. If the wholesale price trend flips, then next years result could be very different. The incremental value of MEL shares over FY2019 should be priced on what one year special dividend shareholders might expect.
The problem with this kind of logic Warren, is that if the MEL share price shot up to $100 you would still be buying. Because there is no limit to how valuable you consider those hydro dam assets. There isn't the significant demand increase in electricity that you think is there -yet. Electric vehicles are still a sideshow, with the growth of double cab fossil fuelled utes dwarfing any growth in the electric car market. The winding down of power intensive industry in NZ more than accounts for any growth in domestic electricity consumption.
I agree that dams of the scale that Meridian own are unlikely to be built again. I say that not only because the rise of the green movement have increased the value of rivers in their natural state. But also because the best sites have already been developed.
The cap on the value of these dams will be determined by the cost to build alternative generation and storage. Despite recent advances in battery technology, it is very difficult to argue that the most cost effective 'industrial scale battery' today is a lake. But lakes are a finite resource, and other batteries are getting better and cheaper. Once the price of controlling a lake exceeds the price of alternative battery technology, then usage rights of lakes and their associated downstream turbines and dams will cease to increase in value. At that price point, the likes of MEL will be priced like a true utility again. And that means in 2019 dollars, taking today's share price and dividing it by a factor of two. Talking to a respected broker who is managing a share portfolio for an aged relative, he is advising his clients to reduce their MEL holding. He sees MEL as the most overvalued company in an overvalued sector, but is not advising clients to sell out completely.
Let's end on a point of agreement though. At some point I agree MEL will be worth $5 per share. But the year in which that happens will probably start with the digits 21.. !
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