MCY Mercury NZ ( MRP Mighty River Power)

[Snoopy]

Summary FY2016 Perspective:

I value MCY as worth between $2.70 and $2.93 (ex-dividend).

Summary FY2017 Perspective:

I value MCY as worth between $2.87 and $3.59 (ex-dividend).

There is quite a large uplift in the upper limit of my MCY share valuation year on year. I have changed by valuation window from the last six years of operations to the last four years of operations. Normalised Dividend payments on average have been much greater in recent years. So it is no surprise that the upper limit of my valuation, based on dividend payments, has risen in line with this. However the high dividend payments have been accompanied by a draining of the imputation credit balance over the same period. I can't help thinking that the imputation credits have been pumped for all they are worth over the last four years and the well is now dry. This being so, I find it hard to conceive of that upper limit ($3.59) of my valuation range being reached.

If you regard Mercury as a dividend paying cyclical then I have a 'rule of thumb' for the share price that says over the business cycle, Mercury is likely to cycle at 20% above and 20% below the business cycle mean value based on earnings. This implies a range (around the earnings valuation mean of $2.87) of $2.30 to $3.44. If you look at the share price chart since listing, that pretty much covers the share price range that Mercury has traded since listing. Given the very low interest rates around at present, and the benign market environment for the Gentailers, it is no surprise that MCY is trading near the top end of this range.

SNOOPY