One of the few organisations able to comment on the value or otherwise of investing in Mighty River Power shares has come out strongly in favour of investing in the company.
Independent researcher Morningstar has issued a report that says investors should subscribe to the MRP float, providing they can get their shares within the indicated price range of NZ$2.35-NZ$2.80.
Many organisations that conduct research on companies, such as brokers, are subject to a "blackout" on publishing up-to-date analysis on MRP while the offer is open. As an independent, Morningstar is free to comment.
The problem would-be investors in MRP face is that the Government could ultimately set the price at above NZ$2.80 should there be sufficient demand.
Morningstar senior analyst Nachiket Moghe concedes the possibility of a price above NZ$2.80 "creates some pricing uncertainty for individuals" but believes the shares will sell within the NZ$2.35-NZ$2.80 target range.
On the Labour/Greens proposal for a single power buyer (to be named NZ Power), Moghe says the plan if implemented might possibly reduce Mighty River’s operating annual income by NZ$100 million.
"We believe the opposition proposal is fairly extreme, but it would significantly reduce our fair value estimate if implemented."
The Government and MRP have put out a supplementary disclosure in response to the Labour /Greens plan, which says that the uncertainty around the plan could have an adverse impact on the MRP share price and value.
However, both Prime Minister John Key and Finance Minister Bill English were today energetically talking down the possibility of the Labour/Greens plan being implemented any time soon, even if the two parties do form a government after the election next year.
And the policy has not deterred Moghe from recommending MRP as a buy.
He says the company has the lowest cost structure of the power generating companies due to its predominance of lower-cost renewable sources of energy - geothermal and hydro.
He has a "fair value" estimated price of NZ$2.70 a share for MRP, which would, based on MRP's 2014 projected earnings, offer a dividend yield of 4.8%.
"Barring major regulatory changes, returns are likely to exceed the cost of capital over the longer term...," he says
Nonetheless, the medium-term outlook for the electricity sector is not very promising because of excess supply and sluggish demand, which would temper operating income growth for the next few years, he says.
"However, cash flows and dividends should rise strongly as [MRP's] capital investment wanes.
"Strong free cash flows due to a declining capital expenditure programme should result in higher distributions to shareholders going forward. We project dividends to rise by 11.5% per annum on average between 2013 and 2017."
Moghe forecasts long-term revenue growth of 4% per annum for MRP.
His forecasts do not assume the immediate closure of the Tiwai Point aluminium smelter plant, which has been threatened.
Moghe says such a closure could throw the electricity market into disarray in the near to medium term, but is reasonably upbeat about the longer term.
"We think there is a good chance the plant will continue operating until 2018 at least, (due to Rio Tinto’s long-term take-or-pay contract with Meridian Energy), giving the industry time to adjust to the anticipated fall in consumption."
10 Comments
Independent researcher Morningstar has issued a report that says investors should subscribe to the MRP float, providing they can get their shares within the indicated price range of NZ$2.35-NZ$2.80.
Many organisations that conduct research on companies, such as brokers, are subject to a "blackout" on publishing up-to-date analysis on MRP while the offer is open. As an independent, Morningstar is free to comment.
The problem would-be investors in MRP face is that the Government could ultimately set the price at above NZ$2.80 should there be sufficient demand.
Hmmmm- Morningstar had this to say in respect of the Fonterra Shareholders' Fund issue last year: Read article courtesy of Sccop
The higher margin branded goods category accounting for 35–40% of earnings offers the potential to lift returns but the presence of established multinational players like Nestle and Danone makes this task challenging.
Our fair value of NZD 5.50 per unit is at the top end of the indicative offer price of NZD4.60–NZD5.50 per unit and equates to a gross dividend yield of 5.8%.
However there is pricing uncertainty stemming from the large variance in the offer price (of nearly 19%) and the small possibility that Fonterra could price the offer above the suggested price band. Given these concerns and the limited scope for price appreciation at the top end of the offer price we would wait for the units to list on the market. Based on our valuation the units look attractive at a price below $4.95.
The financial markets appear to not have the concerns of media bold analysts over the last few days
Why would they? It's business as usual as far as the FED and BOJO are concerned.
MRP shares seem likely to be a better buy now than before. Presuming demand for the shares has fallen in the wake of the Labour/ Greens threat the price should now be nearer $2.35 than $2.80. There probably wont be the stagging possibilities there might have been if there had been excess demand and the institutions had to book build on the market but there would be a handy bump coming in 18 months if National get back in. Worth a punt and nothing to lose at the low end of the range.
The losers will be anyone depending on Government capital expenditure for a school upgrade or similar. Thay can thank david Shearer for that.
Depending on demand for the shares . Price will be better than before due to less demand. If labour /Green get elected then would take approx 2-3 years for them to implement so in this first year there could be some good gains to make a quick buck and get out. Also the dividends are likely to be good for the first few years and then start dropping as the company makes less profit.
MRP..good as Gold!
"another brutal plunge ensues - and it looks like this is what is happening"
http://www.marketoracle.co.uk/Article40088.html
".... It may be the harbinger of an impending liquidity crunch and skyrocketing interest rates that would bring the world economy to a dead stop. Given that the debt and derivatives mess is orders of magnitude worse than in 2008, due to that which caused the problem being use to fix it, or more accurately to paper over the cracks and buy time, we could see a commodity and stockmarket meltdown that would make 2008 look like a walk in the park. Given that gold and silver have just started to crater, are there any other major warning signs flashing out there?"
Oh.... look what Dr Copper has to say
"Copper is believed to be breaking down, and if it should now plunge back towards its 2008 lows, it will have the direst implications for the world economy."
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