MEL - Meridian Energy

[CJ]

First NZ valued it on a DCF basis at $2 (I would have to read again - and I will) but I think they thought this was the best metric to use as P/E isn't suitable for reasons they gave.

Given the range is $1.50+, I assume that means Gaynor wont be buy ANY, for ANY of his funds. If he does, then will the DIL one might have been BS, this would be market manipulation in my view.

[Beagle]

Their DCF valuation used a long term risk free rate of return of only 5% in their model. That might look pretty stupid in 18 months time when the American's have finished manipulating the long term rates.

A LOT of the assumptions in their valuation are matters I don't agree with, for example they are treating future Treaty of Waitangi issues as having no assessed impact on future cash flows. More meaningfully they assume smelter supply can be re-directed and a closure would only have a 2 cent impact on valuation.
WOW, I find that difficult to believe. 14% of the nation's supply comes to the market and it only affects the share price by 2 cents !!, okay, people can believe that if they like...

Relative PE to the other power companies is the best measure in my opinion and for a zero growth industry with what's hanging over them all with the Labour Greens risk...I think all the PE's in the sector look fully stretched and with potentially significant interest rate rises in the next few years we could see meaningful PE ratio contraction.

Gaynor's track record speaks for itself.

Projected dividend yield is the company's main attraction in my opinion...but you've got to wonder if this hasn't been window dressed to look attractive to the masses who are struggling to get 4% on their bank deposits.

Personally I think a stock like this with all its specific and industry risks in a zero growth industry with its present excess supply and potentially huge amounts of excess supply and in a rising interest rate environment deserves a PE ratio of an absolute maximum of 15 and even that's a real stretch which would mean I wouldn't pay a cent over $1.20.

For goodness sake you can buy good quality stocks like SKC with a dominant and protected position and real growth pontential on a PE of 18 without all the sector risk applicable to the electricity industry

[biker]

I brought MRP and although a long term holder as we need the dividends, as with many have been disappointed with the price drop of around 10-12%. So trying to figure out how best to participate in the Meridian float. All in at IPO ? Or 50% in and keep 50% to buy post float, whether they go up or down. Or keep powder dry and invest at sometime in the future.

Trying to figure out a way to compare MRP with Meridian...and perhaps other power co's as well.

One approach I have been considering is to work out a market capitalisation price (share price x no. of shares): units of power capacity ratio. So some advice please. Does this seem a valid way to compare the companies ? I was thinking that if the Meridian ratio was say 10-12% lower than MRP ratio, then this might indicate that the price is about right. Assuming that Mr Market has now done a decent job of pricing the MRP company.

Any thoughts ? Or is this a waste of time ? Are there more meaningful ways to compare the two IPO's ?

Any help / thoughts appreciated.
Cheers
RTM.

I think it is well recognised that the MRP IPO was poorly done and certainly my broker sees it that way. I bought heavily into the IPO and on listing day saw it peak ( 2.74 comes to mind) then start to retreat. With what I had at stake I didn't want a capital loss take away my dividend gain so I bailed out in the 2.60's.
It wouldn't surprise me if English et al when presented with the recommended IPO price, got greedy and added an increment to the recommendation.
With Meridian, I think they will want it to go a lot better, and politically will not want to appear incompetent financially, which they certainly will do if Meridian goes the way of MRP.
Part of this appearing competent will depend on reading the market at the time and pricing the IPO accordingly. This would have to include the current Tea Party debacle in Washington.
So, IMO you have to be into the IPO. The current situation could make it even more profitable.
Watch the market from the moment it lists and if things are not playing out as you would expect, hop out until the dust settles and get back in for an increased dividend play. I will be very surprised if the instalment receipts open showing an immediate loss.
But, all this IMHO and I have been wrong many times before!

Disc. Have applied for and been allocated quite a few so I'm biased.

[amalgam]

Their DCF valuation used a long term risk free rate of return of only 5% in their model. That might look pretty stupid in 18 months time when the American's have finished manipulating the long term rates.

A LOT of the assumptions in their valuation are matters I don't agree with, for example they are treating future Treaty of Waitangi issues as having no assessed impact on future cash flows. More meaningfully they assume smelter supply can be re-directed and a closure would only have a 2 cent impact on valuation.
WOW, I find that difficult to believe. 14% of the nation's supply comes to the market and it only affects the share price by 2 cents !!, okay, people can believe that if they like...

Relative PE to the other power companies is the best measure in my opinion and for a zero growth industry with what's hanging over them all with the Labour Greens risk...I think all the PE's in the sector look fully stretched and with potentially significant interest rate rises in the next few years we could see meaningful PE ratio contraction.

Gaynor's track record speaks for itself.

Projected dividend yield is the company's main attraction in my opinion...but you've got to wonder if this hasn't been window dressed to look attractive to the masses who are struggling to get 4% on their bank deposits.

Personally I think a stock like this with all its specific and industry risks in a zero growth industry with its present excess supply and potentially huge amounts of excess supply and in a rising interest rate environment deserves a PE ratio of an absolute maximum of 15 and even that's a real stretch which would mean I wouldn't pay a cent over $1.20.

For goodness sake you can buy good quality stocks like SKC with a dominant and protected position and real growth pontential on a PE of 18 without all the sector risk applicable to the electricity industry

Roger---what a great post

IMO the reason to buy shares is to increase ones wealth--& there are far better ways, even on an over valued NZ market, than these power companies.

[BlackCross]

Too intent on getting the very top price IMO. As a UK resident during the Thatcher years I partook in all their floats and always made a decent quick profit. Why? Because they always left something for the next man unlike NZ treasury who have a habit of seeking full value. Good for the taxpayer but not for us PIs.

As for initially paying out more than earnings as dividend - seems something of a come-on for mug punters to me.

[RTM]

Thanks all for the input.....Amalgam...some of us older folk while interested in increasing our wealth are perhaps as or more interested in having a decent dividend and protecting the capital against inflation. On balance, I think I will participate in the Meridian float as well.

In addition there is the probably misguided matter of trying to keep these assets in the hands of New Zealanders. Buggar JK for selling these assets.

Cheers
RTM

[Beagle]

Roger---what a great post

IMO the reason to buy shares is to increase ones wealth--& there are far better ways, even on an over valued NZ market, than these power companies.

You're most welcome. I hear this morning that Mighty River Power's board has announced that they have decided to buy back $50 million of its own shares. "Best use of shareholder funds", they claim LOL.
We all know the board is Govt controlled and if people can't see that both the timing of this announcement and the execution of the action itself isn't artifically contrived to help the Govt towards achieving its most optimum pricing on Meridian and Genesis then all I can say is there is none so blind as those that will not see.

Out of respect for those that have (for reasons best known to themselves) decided to invest in this company I won't comment further in this thread.

[Joshuatree]

So many folks with diff needs and investment styles.. I decreased my app because although i will enjoy the income , the thought of sitting on a passive low, no growth investment for so long just doesn't suit my style. Not a bad income stock though imo. And way better ethically and morally then say investing in a gambling company.

[Beagle]

Yes SKC is an objectionable stock to some, those that don't understand that well over 90% of the people that go to SKC's entertainment facilities have a good time. The small percentage who are addicted to casino gambling would probably be addicted to some other form of gambling or other addiction, horses, Keno, sports betting or dare I mention the national pass-time of wasting $20 plus a week by hundreds of thousands of households on lotto, which has a very poor payback ratio of less than 60%.

How many people do you know that waste $1,000 year plus on lotto, year in, year out and have never won a meaningful thing...meanwhile plenty of those same families are struggling to feed their kids breakfast in the morning, go figure...who's really sinning ?

[Joshuatree]

Whos really winning?