Less than $1 upfront for Meridian?

Meridian Energy has vastly increased its number of shares on issue, which could see investors paying less than $1 a share uprfont

20th Sep 13, 10:31am by David Hargreaves

<a href="http://www.shutterstock.com/">Image sourced from Shutterstock.com</a>

Investors in Meridian might feasibly be asked to pay less than $1 upfront for each of their shares after the company made a late change to its share structure.

Meridian said today that it had issued 962,999,998 new ordinary shares in the company, boosting the total number of company shares to 2,563,000,000 ordinary shares.

This change was made ahead of the expected details of the share offer. See here for articles on SOE floats.

What the change means is that about 1, 256,000,000 shares will be sold to the public (being 49% of the total).

If seemingly informed speculation coming out of Australia is correct the offer might be priced to raise around $2 billion, with the shares listing on NZX on October 29.

A total price of about $2 billion would give an issue price of the shares of around $1.60.

Given that investors only have to pay for 60% of the price upfront, this could mean investors being asked to pay less than $1 per share upfront, with the rest being settled in 18 months.

The Government has already indicated that shareholders can expect full entitlement to dividends in that time.

Based on the $295 million after-tax earnings Meridian made this year (although you could expect next year's forecast profit to be higher), this could equate to about 11.5c a share in dividends, or an indicative gross yield of around 12% on the shares - based just on the upfront 60% purchase price.

The full details will be made available later today.

The final pricing will not be revealed, but this offer, unlike the Mighty River Power offer earlier this year, will have a price cap - a maximum that "mum and dad" investors will be expected to pay. That amount will be publicised today.

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49 Comments

by Boatman | 20th Sep 13, 10:49am 1379630986

This is starting to look like something between the electric atmosphere at the Melbourne Cup and huge lolly scramble at a grandchildrens birthday party .

I might just be persauded to take a punt and climb in after all .

For a Dollar down, we get a good yield for a while ... until the chickens come home to roost when the smelter closes.

I Hope not to put my back out which is what happened at the last kids lolly scramble I got into

by Stephen Hulme | 20th Sep 13, 11:00am 1379631607

I guess you are a regular at SKYCITY's casino for added weekly excitment.

I must say I prefer the Berkshire Hathaway ethos of screening out the weak holders.

by Boatman | 20th Sep 13, 11:25am 1379633148

Thanks for the link , when I did my Bus Ad Postgrad ( Wales ) , we had every man and his dog opining and lecturing us on Warren Buffet and his business , his methodologies and investment strategies .

I could not afford shares then , and they look too expensive for me now .

As to the Skycity dig , I am such a tight-arse I would never set foot in the place.

Share ownership is a gamble , but I am sure you know that statistically , its better to be a shareholder in a casino than a punter

by Stephen Hulme | 20th Sep 13, 11:52am 1379634757

Buffet and Munger are not the smart investment operators they are made out to be - but they executed a very forward thinking action - they hired the most clever Indian fellow (forgotten his name now) who controlled their insurance business - his famed management of the "float" provided the consistent cashflow to enable the investment side of the ledger.- Buffet has publicly admitted this in the past.

by Plan B | 20th Sep 13, 10:50am 1379631042

This is very sad I think. The crown jewels of New Zealands Electricity sector, marvels of enginering, being pimped for chump change without shame. Will we see anyone in the finance sector stand up for New Zealand and not just ther own self interest. I wonder.

by Colin Riden | 20th Sep 13, 4:52pm 1379652752

Agreed.

T'is a very weak leader whose ego won't allow them to adapt to changing circumstances.

by Gummy Bear Hero | 20th Sep 13, 4:55pm 1379652910

...... are we referring to John Key here , or to David Cunliffe ... kind of sums each of them up ....

by Colin Riden | 20th Sep 13, 5:10pm 1379653817

Apply anywhere it fits:

National politics, regional or local body politics, government departments, universities, the dairy industry, Federated Farmers, etc.

But John has established both form and profile.

by Gummy Bear Hero | 20th Sep 13, 11:01am 1379631717

So Meridian may have a post IPO capitalization of $NZ 4.1 billion . Which puts it on a current PE of 13.9 , given the previous year's NPAT .... an earnings yield of 7.19 % ....

... not too pricey , but not really a bargain either , for a low growth company , facing uncertainty of it's major customer's smelter ...

by Stephen Hulme | 20th Sep 13, 11:20am 1379632859

Just another one of the Nats efforts to pick winners for us.

They are at it again in the internet services area as well:

The Government has earmarked $15 million towards a second international internet cable between New Zealand, Australia and the United States.

As well as the $15 million contribution, the Government would also commit to being an anchor customer on a new cable fit for research or education purposes, says Communications and Information Technology Minister Amy Adams.

Adams is calling for expressions of interest from companies considering building a cable, she said in a statement today. Read more

I thought Key would move on and quit trying to fail after the Chorus/UFB debacle:

But the Government's intervention is more than just a disagreement over methodology. It reveals deep insecurity about the huge public investment in fibre broadband. If people will really prefer cheaper copper to same-priced fibre, what does that say about the value of fibre? Read more

by Gummy Bear Hero | 20th Sep 13, 5:34pm 1379655273

And another $ 15 million ( I believe ) to fix up the stoopid NOVOPAY software they wasted so much munny on ....

... 15 + 15 = 30 .... bugger , there goes our funding for the next America's Cup challenge !

by rastus1 | 20th Sep 13, 11:18am 1379632710

smelter issue doesn't bother me. Short to medium term issue maybe, long term it will be sorted. I'm picking anytime soon those P.I's in Auckland will be looking to cash out - sick of dodgy tenants, no profits and needing some cash flow for retirement - watch the dividend paying coys share prices move as this cash arrives...

by Stephen Hulme | 20th Sep 13, 11:25am 1379633108

I thought the commonly accepted practice was to buy low, sell high - Meridian is not an absolute bargin, but certainly a baited hook.

by iconoclast | 20th Sep 13, 11:13am 1379632403

Headline in todays NBR - "Big Meridian Discount predicted after MRP disappointment"

If Meridian pricing is heavily discounted, that can only mean danger for MRP price

by Boatman | 20th Sep 13, 11:29am 1379633376

@iconoclast , where do you see the danger lurking in MRP?

I am in MRP and maybe I am blinkered , but I still see it as comparable to Auckland Airport and Port of Tauranga shares in the long term

by iconoclast | 20th Sep 13, 11:37am 1379633873

Do you understand arbitraging?

If you dont - you should - depends on how much you have invested

Read this comment

http://www.interest.co.nz/news/66399/government-says-meridian-energy-will-be-listed-october-29-options-partial-sales-air-nz-an#comment-751361

Then read Gummy's comment above

by Stephen Hulme | 20th Sep 13, 11:42am 1379634178

Or if you really want to unsettle him you could recommend he take your advice from yesterday

by Boatman | 20th Sep 13, 12:00pm 1379635235

Okay so I a limited to having a non-academic understanding of sharemarket arbitrage , but I am not trading my MRP shares, or looking to buy low and sell high .We are long run, 10 year investors so arbitrage does not factpr in my buying decision

My price average in two tranches is just above the current price , but I have no intention to crystalise the loss , nor do I need to .

The yield is better than the banks term deposit and there is potential upside, or downside in the price, and I can live with that , simply because I am not a speuclator ,

We dont need the capital we have invested , but may need the cashflow one day when I retire..

By then , hopefully the yield on an histroical cost basis will be over the elusive 10% per annum on passive investments.

As to the dangers you see..... well I dont see them .

Maybe you see risk differently

by Stephen Hulme | 20th Sep 13, 12:09pm 1379635766

We are long run, 10 year investors

There is no such thing - just a myth perpetuated by the likes of Goldman Sach et al when 401K's were instituted in the US - static investments are just better cashcows to collect fund management fees from.

by Happy123 | 20th Sep 13, 12:17pm 1379636240

Sooo... you don't like MRP or Meridian, what would/have you invest in on the NZX?

by iconoclast | 20th Sep 13, 12:29pm 1379636990

You'se guys are not listening

Nothing wrong with MRP or MER ....... at the right price

by Happy123 | 20th Sep 13, 12:43pm 1379637796

So that begs the question, "is $1.60 the 'right' price"

Would you agree with Gummy "not too pricey , but not really a bargain either"

by Stephen Hulme | 20th Sep 13, 12:45pm 1379637902

Absolutely nothing as I said I find it more efficient to trade US E -mini futures if the conditions are to my liking - NZ slippage costs are just too high to be materially inflicted on a professionally managed portfolio.

by Happy123 | 20th Sep 13, 12:47pm 1379638059

I read your Wikipedia link, are you betting on commodities or shares?

by Stephen Hulme | 20th Sep 13, 1:10pm 1379639414

This link should clear up any misunderstandings

by Andy Rodgers | 20th Sep 13, 3:57pm 1379649463

Stephen - Would you mind letting me know which broker you use for futures trading.

by Stephen Hulme | 20th Sep 13, 4:26pm 1379651187

Yes Elliot - but he works for a large Chicago based FCM servicing institutional business - he does me a favour for all the execution business I put thru him when I worked in London. I am not at liberty to divulge his full details without talking to him first - he has little need to do my piddling small lot stuff never mind fielding phone calls from potential odd lot clients.

In the first instance I would contact a NZ broker, possibly OMF, and if you consider yourself a pro non retail client try ICAP.

by Andy Rodgers | 20th Sep 13, 4:50pm 1379652601

Thanks for the information.

by KH | 20th Sep 13, 12:31pm 1379637063

Stephen Hulme. "There is no such thing" Sorry Stephen but there are plenty of those. It might not be your way of doing business but being a long term investor is quite a good way to do things.

One reason to do things that way is that to constantly trade/ margin etc means you are in playing in a field with skilled professionals.

Plenty of people buy some shares, plan to keep them for a long time, maybe they review their holding every year but usually hold.

As for fund management fees. You can buy shares without those. Besides fund managers also like the churn transaction fees.

by Stephen Hulme | 20th Sep 13, 12:44pm 1379637849

Please tell me how I am to efficiently allocate hard earned capital when corporate profit proclamations are publicly called into question in respect of their authenticity?

The good news is the combined net earnings of the 24 companies covered in this column increased by 11.5 per cent compared with the previous year while total dividends rose by 10.3 per cent.

And most of the outlook commentary for the next six and 12 months is reasonably positive.

The bad news is the majority of companies have lost confidence in our accounting standards and are now highlighting their underlying, normalised or adjusted earnings instead of audited profit. This is a very worrying trend, particularly for those who experienced the creative accounting excesses of the 1980s.

Lax accounting policies resulted in a disastrous misallocation of capital 30 years ago as investors poured money into companies that reported inflated and unrealistic profits.

Why is the accounting profession allowing this practice to develop again? Is there any leadership at the New Zealand Institute of Chartered Accountants? Read more

The burning question is whether companies are deliverying free cash flow from operations to fund dividend payouts or, as are many are doing, resorting to issuing debt to fund dividend returns on publicly traded equity.

All the above creates an air of unsustainability, which I choose to avoid.

by iconoclast | 20th Sep 13, 12:35pm 1379637307

My favourite

the marathon effect

Investing and trading can be likened to running a marathon. As anyone who has run a marathon will know, you cant step straight out and run a marathon. It requires considerable training, preparation and conditioning. You need to be able to run one kilometre before you can run 42 kilometres. If you cant run one kilometre, unlikely you can run 42 kilometres. Serious marathoners will build up to running 250 kilometres per week in training, week in week out for 6 months, culminating in speed work over the last month. Thats running 1 kilometre and repeating it 250 times. Similarly the novice trader needs to understand the very short term first. Pick a time frame. ie the opening session from 0949am to 1000am. Focus on that one single time period. Dissect it. Examine it. Master it. Do not trade any other time period until you have mastered it. Once mastered, move to another time period, or extend the chosen session. Like the marathon you will not last the distance if you do not understand or cannot perform over the shorter distance. Repetition is a very large part of any athlete's training.

by Happy123 | 20th Sep 13, 12:50pm 1379638236

This advice is very true for day traders but your average Jo who wants a alternative to property is not going to day trade.

by iconoclast | 20th Sep 13, 1:11pm 1379639494

The ONLY point that I am making is - if you want to sleep peacefully at night - and invest for the long term - you should learn the pitfalls of the short term "first" - it changes your perspective and understanding dramatically - and then you can understand and adjust accordingly

Consider any losses you may incur in short-term training as per Stephen Hulme as money well spent in the long term - it will save your bacon in the long run

I might be right and I might be wrong - in my opinion - the right-pricing of MRP is $1.80 max - and this is the 3rd time I have stated it. Note I said MRP not MER

PS: It takes a few hard lessons to learn not to "fall in love" with any investment.

by Stephen Hulme | 20th Sep 13, 1:22pm 1379640177

I constantly attempt to calculate the higher levels of risk necessary to recover the losses of a losing trade with less capital - invariably the risks outweigh the potential rewards and thus the losses are generally not recovered. As iconoclast notes, it is best to be very aware of that which you pay to others to unload their not so money like position - You have to be clear about what is prompting them to seek your cash in preference to that which they own.

by Hamish | 20th Sep 13, 2:14pm 1379643246

"You have to be clear about what is prompting them to seek your cash in preference to that which they own" +1 to that.

by moa man | 20th Sep 13, 1:30pm 1379640602

PS: It takes a few hard lessons to learn not to "fall in love" with any investment

Very good advice iconoclast, people should listen. Had my financial heart broken too many times by being not willing to let go of an investment, when all the signs were there that it was time to part ways.

by speckles | 20th Sep 13, 2:01pm 1379642497

A worthy discussion for those new to shares or plain passive investors. The psychology to let go of investments and cash in and accept a loss is a great challange when you begin.

People should not be too worried about MRP, if they had watched over the Northern summer to the taper QE theory noise they would have made more than a enough money knowing it wasn't going to happen :-)

I really wonder if it was all a jack up, hope you all were on the right side of it :-)

by Stephen Hulme | 20th Sep 13, 2:36pm 1379644573

Not really - but I made sure I stood aside.

This type of nonsense is beyond my purview

by Gummy Bear Hero | 20th Sep 13, 5:33pm 1379655204

Some reckon that Russia shouldn't be included in Jim O'Neill's BRICs .... but that Turkey should be ...

.. which leads one to invest in ? .... son of a BITC .... !

by Happy123 | 20th Sep 13, 2:32pm 1379644352

I started buying/trading shares a couple of years ago and have (what I think) is a couple of helpful tips.

Get a book and read up on trend line analysis (inverted triangles, head and shoulders patterns, etc), it's not heavy reading and will help you manage the short term side of things and give you a better idea of when to buy. As far a what to buy you just have to pick a good company in a growth industry and your long term prospects will be good (eg Rymans and healthcare).

Set up a watchlist on a online trading platform and you can have pretend portfolios where you can see if your theories/picks play out.

Don't panic if the share drops in value, if you've followed the above advice on what to buy it will come right eventually.

Best to have a broad range of shares you follow on a watchlist and swap between them as trends go up and down, this way you'll make the most of the ups and minmise the downs.

Get advice from a broad range of people or sources, don't rely on one.

by KH | 20th Sep 13, 2:02pm 1379642540

OK Icon I get the point. What I need to think about is. Short term first then long term.

But I'm still with Happy and not going to go day trading ever. Wads of cash under the mattress seems to be my future.

by iconoclast | 20th Sep 13, 2:15pm 1379643334

Don't forget the Fairy Tale about the Princess and the pea under the mattress - she couldn't sleep at night

by Gummy Bear Hero | 20th Sep 13, 4:31pm 1379651464

Not 100 % sure how that connects to the Meridian IPO .....

... she must've been pretty boozed to have successfully peed through 20 mattresses ...

Still won the heart of the Prince .... pervey little oink !

by Happy123 | 20th Sep 13, 2:17pm 1379643466

Thanks, I read your post about MRP. My question is in relation to MER...

Anyone done any analysis on MER?

by Christov | 20th Sep 13, 2:41pm 1379644888

Yay....It's Friday...hooo tough week.!

But today to contribute to this interesting investment thread and hopefully make you smile in doing so.....

Investment advice should always be in line with your objectives, conveying them is an important stepif only to yourself.

And.....so

An American investment banker was at the pier of a small coastal Mexican village when a small boat with just one fisherman docked. Inside the small boat were several large yellow fin tuna. The American complimented the Mexican on the quality of his fish and asked, "How long does it take to catch them?" The Mexican replied: "Only a little while". The American then asked why didn't he stay out longer and catch more fish? The Mexican said he had enough to support his family's immediate needs. The American then asked, "But what do you do with the rest of your time?" The Mexican fisherman said, "I sleep late, fish a little, play with my children, take siesta with my wife, Maria, stroll into the village each evening where I sip wine and play guitar with my amigos, I have a full and busy life." The American scoffed, "I am a Harvard MBA and could help you. You should spend more time fishing and with the proceeds, buy a bigger boat with the proceeds from the bigger boat you could buy several boats, eventually you would have a fleet of fishing boats. Instead of selling your catch to a middleman you would sell directly to the processor, eventually opening your own cannery. You would control the product, processing and distribution. You would need to leave this small coastal fishing village and move to Mexico City, then LA and eventually NYC where you will run your expanding enterprise." The Mexican fisherman asked, "But, how long will this all take?" To which the American replied, "15-20 years." "But what then?" The American laughed and said that's the best part. "When the time is right you would announce an IPO and sell your company stock to the public and become very rich, you would make millions." "Millions.. Then what?" The American said, "Then you would retire. Move to a small coastal fishing village where you would sleep late, fish a little, play with your kids, take siesta with your wife, stroll to the village in the evenings where you could sip wine and play your guitar with your amigos."

by Stephen Hulme | 20th Sep 13, 3:11pm 1379646688

LOL - took the exit route in 1998 - just need this bloke Joyce to stop spending the taxes taken from the stash to pursue the dreams of ultra rich men. Watch video here

by Andrewj | 20th Sep 13, 3:21pm 1379647265

Stupid of him to get filmed with his yacht in the background.

Wonder how many of those envolved with the challange could be on this list?

http://www.icij.org/blog/2013/04/release-offshore-records-draws-worldwide-response

by iconoclast | 20th Sep 13, 3:26pm 1379647585

Listen to the chatter

I provided a consulting service to an Australian Financial Planner for a number of years. He had a medium sized office with 6 staff managing about $100 million for private high net worth individuals in the form of SMSF's (self managed super funds). This Financial Planner, or Financial Advisor, with a whole bunch of letters after his name, including CFP SSA, had no formal qualifications.

He was a "long only" operator, investing for the long term only. Never a seller.

Of relevance to this conversation is - He was in the business. He was what would be considered by most of the investors here, a "professional".

(a) Superannuation Fund are set up or formed with a "mandate" equivalent to a set of "articles of association" which have to be adhered to.

(b) He had an on-going long-term love-affair with charting. He was a charting "guru" a member of the congregation of the church of the squiggly line

(c) He maintained a chart going back to the early 1900's of the Price Earnings Ratios of all the main indexes which indelliby established a view that when Price Earnings were below 10, it was time to buy quality shares, and when above 20, do not, never ever, buy.

The implications of the "mandate" the manager has to live by, are, he has to be invested at all times, he cannot hold cash. Otherwise he can be held liable to account for any missed gains.

Unfortunately, because he had a "long only" outlook, and had to be invested at all times, he was exposed to those calamatous "events" that come along every now and then. He would get caught time and time again and wipe out 30% of clients funds. One occasion, at the time of the dot.com.bomb he had a love-affair going with dot.com companies and blew up $30 million in two days. He experienced a few of those disasters.

In the end I had to give up on him and walk away. He wouldn't listen. His squiggly lines kept getting in the way. He didn't know how to protect capital.

by KH | 20th Sep 13, 3:29pm 1379647760

So he performed at the rate of a fairly ordinary financial advisor then.

But better than most, because the idiot missed the opportunity of churning the portfolios of the suckers. And missed getting the fees for that. Dope.