MCY Mercury NZ ( MRP Mighty River Power)

[Dassets]

PS investing cashflows would probably include the upgrade . It isnt r and m. But dont confuse cashflows with value assessment. They are two separate processes

[Aaron]

Anyone concerned that the government is having a review of power prices?

Sorry this may have already been discussed earlier in the thread or on another thread.

https://www.tvnz.co.nz/one-news/new-...tricity-market

50% increase since 2000 that is a little less than 3% per year (50/17). The power companies should be applauded they have been helping the central bank whose target is between 1-3%. Admittedly the top end of the range but only in line with inflation per the reserve bank.

Per the reserve bank website.

"Since 2000, New Zealand CPI (Consumers Price Index) inflation has averaged around 2.7 percent. This compares with averages of 2.4 percent in the 1990s, and averages of over 11 percent for the previous two decades. Since September 2002, the inflation target has been to keep inflation within a range of 1–3 percent on average over the medium term."

The magic of inflation.
The funny thing is nz with all its hydro should have some of the worlds cheapest (and cleanest) power but rates are allowed to be high so that the power companies can reinvest in new generation. I haven't looked at the books lately but I suspect the bonus dividends we get every year might be the reinvestment funds.

Our best hope is that the people of nz still own 51% so they might go easy on us. Power companies and lines companies are a license to print money.

[Joshuatree]

Thanks Aaron. I saw the headline and couldn't find it again. Power companies have had a great run s/p and div wise. Govt reviewing this is good and i think many will be very concerned re the Getailers they have in their portfolios.. Too good to last.

[blackcap]

Did I hear Megan Woods lie and say that "price have increased by 50% in real terms"? I think she has her terminology wrong and should be saying "nominal terms". Spin abounds in the political sphere. I know in 2000 new grads were getting around $30k in their pay packets. What are new grads starting out with now? How does that relate to a 50% increase in power prices since 2000?

[couta1]

Did I hear Megan Woods lie and say that "price have increased by 50% in real terms"? I think she has her terminology wrong and should be saying "nominal terms". Spin abounds in the political sphere. I know in 2000 new grads were getting around $30k in their pay packets. What are new grads starting out with now? How does that relate to a 50% increase in power prices since 2000?

More Communist propaganda, prices haven't increased at all in real terms since 2004.

[Joshuatree]

If you can put your politics aside for a mo ,the fact is the Govt is doing a major review, thats the fact holders need to be looking at.
"So, she's launching a review of the entire electricity market - from generation to retail and distribution. It will look at whether the price we pay is fair, if the market is competitive and properly regulated and if companies are geared up for emerging new technologies.

The Government also wants all electricity generation to be from renewable sources by 2035 - so electricity companies agree that the time is right for a major review."

[hogie]

If you can put your politics aside for a mo ,the fact is the Govt is doing a major review, thats the fact holders need to be looking at.
"So, she's launching a review of the entire electricity market - from generation to retail and distribution. It will look at whether the price we pay is fair, if the market is competitive and properly regulated and if companies are geared up for emerging new technologies.

The Government also wants all electricity generation to be from renewable sources by 2035 - so electricity companies agree that the time is right for a major review."

I thought the government wanted to regulate the entire electricity market and set the prices? Or was this just pre-election talk a couple of years ago ...

[couta1]

I thought the government wanted to regulate the entire electricity market and set the prices? Or was this just pre-election talk a couple of years ago ...

They did pre-election and I'm sure that's their preferred option, maybe this review could lead down that path if the findings lean a certain way,can we trust the review to have no bias? Remember Winnie also wanted to buy back the power companies off shareholders for a song.

[Snoopy]

Year	New Thin Air Capital	Post Tax Effect Multiplier	Effective New Thin Air Capital	Special Dividend Per Share	Post Tax Effect Multiplier	Surplus Capital Returned
FY2014	$40m	0.72	$28.8m	$0m	1	$0m
FY2015	$421m	0.72	$303.1m	$70m	1	$70m
FY2016	$136m	0.72	$97.9m	$35m	1	$35m
FY2017	$48m	0.72	$34.6m	$56m	0.72	$40m
Total			$464m			$145m

Note:

1/ A post tax effect multiplier of 1 indicates that tax has already been paid on this dividend
2/ A post tax effect multiplier of 0.72 indicates that the dividend was not imputed and 28% tax needs to be paid.

The remaining thin air capital on the balance sheet is therefore: $464m - $145m = $319m

The net total of this 'thin air capital' that has been accumulated could theoretically support extra debt 'd' according to the company's optimised gearing ratio.

'd' / $319m = 45% => d=$144m

We thus have a total of amount of: $319m (equity) + $144m (debt) = $463m investable available to build a new geothermal power plant. Compare this to the $475m cost of building the Ngatamariki 85MW thermal plant in FY2013. This is really spooky. The difference between those figures is only 3%, well within the margin of error! It does look like your suggestion that the special dividends are part of a wider capital optimization strategy, fish, are credible!

Anyone concerned that the government is having a review of power prices?


The funny thing is nz with all its hydro should have some of the worlds cheapest (and cleanest) power but rates are allowed to be high so that the power companies can reinvest in new generation. I haven't looked at the books lately but I suspect the bonus dividends we get every year might be the reinvestment funds.

Aaron, as you can see from my post above - I did look. My conclusion was that the special dividends paid to date have left room for reinvestment. If I may quote from AR2015 p15

"Over the past two years in light of lower demands for growth capital expenditure, the company has made significant headway, returning cash to shareholders while retaining balance sheet flexibility for future growth opportunities."

It looks like a case of management 'doing what they say they will do' to me. Not an asset strip for cash.

SNOOPY

[Snoopy]

PS investing cashflows would probably include the upgrade . It isnt r(epairs) and m(aintenance).

This from p40 of AR2016, indicating how Mercury separate the two.

"Growth Capex represents capital expenditure incurred on new initiatives and projects to enable the company to increase its earnings, with the majority of the expenditure relating to the further deployment of smart meters by Matrix."

"Conversely (S)tay (I)n (B)usiness capex represents the capital expenditure incurred by the company to retain the assets in good working order."

The problem with this distinction, as I see it, comes with very long lived assets. Replacing a turbine that is 50 years old, you will find technology has moved on. The very act of replacing a turbine and hence creating a fifty year technology leap will in itself create an operational performance improvement. And I dare say you could say the same on the electrical side of the business. Thus in my view, Investment capex and SIB capex becomes blurred.

SNOOPY