Big increase in number of Genesis Energy shares suggests move to make price palatable to general public

Big increase in number of Genesis Energy shares suggests move to make price palatable to general public
Huntly power station

The last SOE float off the block Genesis Energy has followed in the footsteps of Meridian Energy by undertaking a massive increase in the number of its shares - a move that is likely aimed at making the share price seem 'cheaper' for mum and dad investors.

It looks as though the Genesis shares will now sell for less than $2 each, possibly quite a bit less, depending on demand.

The Government, in a reversal from the previous floats of Mighty River Power and Meridian has suggested it may only sell as much as 30% of Genesis - though clearly its aim will still be to sell 49% as it did in the two other power companies.

Genesis, which is set to be offered to the public and list on the NZX next month, has filed a notice with the Companies Office to say that its number of shares on issue has been nearly doubled to exactly 1 billion shares (from around 540 million previously).

A similar late step was taken just before the public float of Meridian last year, which had the effect of investors only having to front up with an initial $1 a share and a total cost of just $1.50 once the shares are fully paid up.

Independent research house Morningstar has valued Genesis between $1.69 billion to $1.89 billion. If the Government was able to sell the shares at such a valuation, this would have called for a share price of around $3.10 to $3.50, based on the original 540 million shares in Genesis.

But, by carving up the shares into now a billion pieces, this means investors will likely have to pay at most $1.70 to $1.90 a share, making the investment seem that much 'cheaper' for the mums and dads - though of course that is not the reality of share valuations and how they are arrived at.

Based on the Morningstar valuation, the Government could be expected to take between $500 million and $570 million if it sells 30% of Genesis, and between $830 million and $925 million if it managed to get 49% away.

But whether it will be able to get such full values, given the lack of success of the Mighty River and Meridian share prices post-listing is a moot point. At say just $1.50 a share, the Genesis offer would raise $450 million for 30% and $735 million for 49%, which are more like the figures this writer would pick. A price of $1.50 a share for Genesis would also mean the shares are no more 'expensive' for the buyers than the Meridian shares were.

Mighty River shares were recently trading at $2.02, well below their issue price of $2.50. Meridian instalment receipts were at $1.09, which is up on the $1 issue price - but the issue price was regarded by market commentators as heavily discounted in comparison with Mighty River.

Further details of the Genesis float are expected this week.

Finance Minister Bill English announced late last month the Government planned to open a public offer for shares in Genesis in the second half of this month and list it on the NZX around mid-April.

See here for all our articles on SOE floats.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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5 Comments

What does it say about the intelligience of the financial services sector and investors, where increasing the number of shares, and reducing the price of each makes them more "attractive".
The sad thing is that it will probably work.
 

Well, if they publicise how many shares they were able to sell, then the government could claim it is much more successful than the last float. I'm putting business journalists on notice about this- If you report that to be the case with a straight face you will have no credibility.

Mum and Dad may not be as stupid as some think, this time around the hype and slam and dunk.
Though I doubt it.?!...some people, never learn.
Once, twice, thrice, quadruple bitten, might make them shy away, if any sense??.
Your investment for no, nil returns, may be someones idea of an investment portfolio, but I always understood, it was to make ends meet, save for a rainy day, but the drought and stats keeps getting in the way of a happy retirement for a lot of Elderly savers (Yeah right)....and investors.
Bailing out 27 Finance Companies and counting.
Bailing out numerous Insurance Companies and counting.
Bailing out Sordid Energy and counting.
Bailing out Awkland, Kaipara (Up shite creek, without a paddle), Dunedin, Poor Christchurch ...(No drought there, quite the reverse), but still counting.
PPPs galore!!
Next.
Rates up, rates down, fees up, tax take down, print, print, print.
Deficit climbing.
"Next sucker right in here, please, welcome Ma n Pa, how's yer port folio and yer savings".  need help with that.?
Wot, you have a leaky house, a neighbourhood to keep up, infrastructure to maintain.
"Well as can be expected, I would say".
Even after importing more trouble, more bent ideas and QE, than you can image,
"Trust me, have I got a deal for you".
"Wanna buy another company you already own, we will lend you the money, gratis".
"Genesis, then exodus, plus your bills will rise and rise and your investments fall and fall" 
Investments, in New Zealand, surely, surely another conjurors trick. 
Classic.
Tui.
Reality, or is it just me, another suckers bet??.
To pay for the waste of space, time and effort of the frausters, clipping the ticket at your expense and living high on the hog, but not all they are cracked up to be.
Trustworthy, I think not.
Otherwise, we would not all be in debt, they took on, on your be-half, sorry, whole account.
 
 
 
 

Markets are not rational.  Power co shares are out of favour/unfashionable.  So they will be cheap...too cheap maybe.  Only time will tell, but moving the opposite way to mass opinion may pay dividends. 

Based on current earnings and dividends MRP and Meridian still seem like good investments to me if you can ignore the share price. The market is discounting these companies quite steeply because of the Political risk presented by the New Zealand Power proposal. If the Nats get back in that risk will go away as Labour will be able to quietly forget the idea in opposition as they have most of the other odd things they have come up with as policy. In that case, if Genesis is priced at a PE around the same as Meridian it should be a good buy if you are preapred to take a punt on the election.

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