Simon Reichenbach on the battle for audience; NZME's prospects; David Kirk's new venture; local oil; solar energy; Tiwai Point's future; 3D printing; Dilbert & more

Simon Reichenbach on the battle for audience; NZME's prospects; David Kirk's new venture; local oil; solar energy; Tiwai Point's future; 3D printing; Dilbert & more

Today's edition is a special guest post by Simon Reichenbach, an Auckland-based equity analyst.

We have a Monday-Wednesday-Friday schedule for Top 10. Bernard will be back with his version this Wednesday. We will have another guest posting on Friday.

As always, we welcome your additions in the comments below or via email to david.chaston@interest.co.nz.

See all previous Top 10s here.

1. Lifting your Google ranking - search algorithm evolution
In an increasingly globalised and correspondingly centralised world the battle for audience is becoming increasingly complicated and sophisticated.

Strategies to capture internet user’s screens may have been outflanked by the recent evolution of Google search algorithms.

CNBC has reported that a refreshingly old fashioned approach to securing an audience is being reflected in Google’s search filters - rich content.

As a result the new strategy for success on the internet is to hire writers. The future of interest.co.nz looks assured.

The old formula went something like this: Find the words people most often use when searching for your type of business and then frequently incorporate those keywords and their derivatives in building your website.

Now, not only is that method defunct, it can kill your business. Google has spent the last few years updating its algorithms to punish once-prominent sites that came to rely on those now outdated methods. Preferential treatment goes to pages that Google deems content rich with original and informative material presented in an attractive way.

2. NZME flotation moves forward
The flotation of APN’s New Zealand media arm appears to be progressing and a listing prior to Xmas is likely based on the steady flow of media articles related to the business.

How NZME is promoted to investment markets will be interesting given the disruptive impact of the internet on the traditional media. Australasian media companies have been slow to embrace the new opportunities hence the emergence of Trade Me, Seek and the like.

Whether NZME can successfully monetise its content in a growth context or whether the business will rely on dividend yield from traditional sources remains to be seen. From former APN asset The Listener

Those looking to take a punt on the sharemarket will have a flurry of initial public offerings (IPOs) to choose from before Christmas. It’s tipped that at least six Kiwi companies will launch a public float on the New Zealand Stock Exchange (NZX) by the end of November and another on its Australian counterpart, the ASX. The two standouts by size are health software company Orion Health and media and entertainment company NZME (formerly APN). Interest in the latter is likely to be limited to Kiwi investors, with APN hoping to raise $500 million after splitting off its New Zealand assets,...

3. Further opportunities to participate in the disruptive technology   
Ex All Black captain, media conglomerate CEO and Trade Me acquirer David Kirk is promoting public investment in investment vehicle Bailador Technology Investments Ltd. Bailador intends to raise capital to enable further investment in internet related businesses in Australia and NZ and list on the Australian Stock Exchange.

Currently the fund has minority holdings in 3 technology ventures relating to hotel management channels, online video broadcasting software and media spend aggregation.

As is typical of such funds the fund’s managers will capture a significant proportion of successful ventures upside. Promotion within New Zealand has been low key to date but Mr Kirk’s involvement is likely to pique the interest of some New Zealand investors. From the BRW

"We bring experience, as well as cash, to the table for a company that is beyond the angel investor stage but needs some help getting to the next level,” Mr Kirk said.

[Image sourced from Shutterstock.]

4. NZ Trade & Enterprise getting into the disruptive technology space
NZTE also seems to think that developing NZ’s technological capability will be good for the economy.

Recent news on the NZTE website promotes NZ technology companies becoming involved in the development of applications for Facebook’s  virtual reality system Oculus Rift. Facebook acquired the incipient Oculus Rift technology for US$2 billion and believes it could be the next big thing.

NZTE features an interview with Neville Spiteri Co-founder and CEO of Wemolab a digital studio involved in number of successful digital properties. Perhaps they are onto something with the potential for 3D immersive viewing/participation in All Black test matches by all those armchair critics.

5. Greymouth Petroleum’s legal dispute resolved?
The Supreme Court has dismissed an appeal by the former CEO John Sturgess to prevent a 13.85% shareholding being sold to co shareholders Mark Dunphy and Peter Masfen. This has been a longstanding dispute that has been ongoing for several years.

Greymouth Petroleum has been another low profile company in the New Zealand context with a still substantial business. Greymouth Petroleum has gas business in Taranaki and exploration in South America. There is little doubt that Messrs Dunphy and Masfen have substantial financial resources.

The protracted time the dispute has taken may have worked in their favour given the current trend in oil prices, with Brent crude now solidly in the mid US$90s. Hopefully resolution of the dispute will enable a focusing on the company’s further development.

Chief justice Dame Sian Elias and Justice Terrence Arnold concluded the application by Jet Trustees, a corporate trust representing Sturgess family trusts, raised “no issue” of general, public or commercial significance.

6. Tag Oil’s East Coast potential unresolved
Keeping to the theme of the NZ oil and gas industry fellow Taranaki oil and gas producer has been exploring in the Gisborne back country. Tag has plugged and abandoned the Waitangi Valley 1 well.

Rather than abandoning the well due to an absence of hydrocarbons the reverse is the case with the Waitangi Valley 1 well. The well encountered unprecedented mud log pressures at shallow depths which the Tag oil drill rig was unable to deal with prior to drilling to target depth. Such pressures create issues in respect of safety, measurement of resource and longer term well productivity. It appears that further exploration in the area will now be several years away with the key to unlocking the petroleum potential of the region still stuck in the lock.

COO Drew Cadenhead stated

The first thing I want to make perfectly clear ... is Waitangi Valley-1 is not a dry hole, it is anything but a dry hole ... the indications to date are actually quite positive.

7. Solar power the alternative
New Zealand although largely reliant on oil for transport fuels has established an electric power industry which largely makes use of renewables – water and geothermal fluids. The NZ electricity generation industry should not be complacent however with solar power developing at a rapid clip and the cost per unit of electricity from solar sources falling rapidly.

Citibank recently released a report which examines 'Energy Darwinism’. Citi states that

Socket parity for domestic solar was reached as early as 2013 in Italy,  Spain, Germany, Portugal, Australia and South West US, while Japan should reach parity within 12 months and South Korea and the UK by the end of this decade.

Little wonder Vector is now experimenting with the installation and leasing of solar voltaic systems. The greatest drawback remains the ability to store solar energy.

8. NZ Aluminium smelter outlook rehabilitated
The Tiwai Point smelter has recently been in the headlines in relation to work injuries. NZAS continuing operation in Southland is predicated on access to low cost electricity. The smelter operates as a tolling operation and aluminium output, amongst the world’s purest, is priced in US$.

Electricity prices have been relatively benign over recent months from a consumer perspective. Even if electricity consumption is wound back per NZAS’s revised purchase agreement, the viability of the smelter must have improved with the modest rise in aluminium prices and significantly the depreciation of the NZ$ to the US$.

NZAS General Manager Mrs Gretta Stephens stated in relation to workplace injuries

When a worker was no longer able to perform their tasks due to a work-related medical condition the smelter focused on rehabilitating the employee.

Seemingly the NZ Government may have rehabilitated the smelter’s future itself if the current depreciation against the US$ is sustained.

9. Amanah KiwiSaver off to a flying start
The Kiwi is a flight less bird but sharia compliant savings scheme has taken wing and made a tremendous start with a 13.3% return for the 3 months to September 30. The fund which ironically invests in US stocks has only been active for 2 quarters and received a boost from NZ$ depreciation. To date the fledgling fund has attracted NZ$1 million in funds.

The fund manager Goldman Henry wants to ‘capture the burgeoning Muslim community in New Zealand’ which currently has around 42,000 members per the NZ census. Fund manager Brian Henry said that

more of the investment had come from those investing for ethical reasons rather than Muslims doing so for religious ones.

10. 3D printing more than a toy
To finish on a final technology note 3D printing is often mooted as a revolutionary technology that will transform the means of production. While 3D printing or additive manufacturing has made strides in prototype manufacture the widespread application of the technology is perhaps taking longer than some proponents envisage.

One life saving application of the technology made by the New York Presbyterian Morgan Stanley Children’s hospital is not the printing of a replacement heart but the creation of a 3D model of a child’s heart. The model created from data scanned from the patient enabled surgeons to map the unique geography of the heart and plan surgery of the time critical operation. The 2 week old baby now has a normal life expectancy.

Dr Emile Bacha expects all surgeries that deal with complex 3D structures will benefit from the approach.

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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#7.  Solar cost continues to plunge and the electricity industry and the government have a choice to make.  Solar is likely to be predominant. They could fight the rise of distributed electricity to maintain the interests of the current (pun?) industry.  Or!   They could decide in the interests of New Zealanders and promote the distributed generation model.
New Zealand is uniquely placed to have an integrated electricity system.   The very big hydro capacity is well suited to be "the battery" working in conjunction with wind and thermal, combined with what is going to be a very big capacity solar generation owned by homeowners and small business, including rural.
We could make all that work together very well as a nation.  With huge benefit to us.  Or we could allow the incumbents to block it.
Yes.  The line companies will have to adapt physically and financially.  But why not.
Yes.   Big generators will have to adapt financially and operationally.  But why not.

Solar power is not transport power. Not on the scale ,density, cost and EROEI our present economy needs.
I am not the one gambling on ever rising house prices or ppls ability to pay rent am I.
regards

Don't be sad Steven.  Electricity works fine for the family car.    Even today the addition to your power bill from charging up your family Mitsi is just a fraction of what it costs to fill up with petrol to do the same work.
Yes there is a battery problem, yadda yadda, not yet solved.  We all know your view.  But it'ssolved enough already to make the commuter vehicle quite viable, especially if you have solar on the roof.
And speaking of that, the vehicles will give us a form of 'distributed' storage, which will work in so well with the rooftop solar.  We just need a government with the wit to keep up with the technological and financial possibilities.  And modfiy us a national grid and ownership that supports it.

...   the annual 3000 km solar challenge down the centre of Australia would have me believe that friend steven is out of date again ...
 
 http://www.worldsolarchallenge.org/

MiEV was 65k last time I looked v 20k for the conventional one, whats the HP extra payments on $65k v 20k? 17%? 22%? per annum ouch. Add it to the mortgage? not if you are renting you wont.
So actually I think you'll find economically for many NZers EVs will be un-affordable.  
Solar on house roof and car storage? how does that work if you use the car to commute? it aint there mate.
Viable commuter? hmm HP costs, even on the mortgage $65k...at 6%....still quite a additional payment.  If you have a 90% mortgage? as many 30 somethings do? wont happen.  Not without something else giving, like hosue prices...consumer spending.
regards
 
 
 

You want to quote some numbers Steven. Try some different math on this then.  $40K for standard mitsi outlander and  $60K for the hybrid.   It's not 3-1 at all.  http://www.mmnz.co.nz
Some are rarely using petrol for their regular commute.  But have the option.
Give us the cost comparison, I sugggest you use as energy cost the Mercury 11pm to 7am rate.  Which I understand is designed for the purpose.
Times are changing.  Technology progress and lower costs are opening an opportunity.  We need to reorganise our generation and distribution for the new ways to benefit New Zealanders.

Are hybrid vehicle owners not being subsidised by the rest of the vehicle fleet in N.Z. for ACC and road user levies?
It is my understanding that 100% electric vehicles need to pay RUC, the same as a diesel. However I can't see that hybrid vehicles are paying their share of road wear and tear and risk weighting to ACC levies.

Solar's viability in NZ is simply a function of loopy retail pricing where lines charges ( ie fixed costs) are not separated  but integrated and charged on the volume of energy used.
 
Net effect which was meant to incentivise low energy use is to subsidise holiday home owners who quality as low energy users. Many occasional bach users on Waiheke - net of AECT dividends pay no power bills at all - yet this would be one of the most expensive areas to service.
 
Solar installations mean families without solar pay those with solar installations line charges, because they don't disconnect from the grid and expect to receive all it's benefits at no cost.
 
Because the Vector's of this world receive a regulated return on their assets they can simply pass on the costs they no longer receive from solar installations to those without.
 
Doug Heffernan's final plea on retiring was for god's sake show the line charges on the bills.
 
NZ is blessed with very high renewables - Hydro, Geothermal, Wind. We just don't need solar as yet and it must not be priced to load it's true costs onto others. Marginal  incremental current renewables makes far more sense than rooftop solar.
 
The day solar is priced correctly ( assuming continued grid connection ) it is dead in the water.
 
It has it's place - but not on grid connected housing in NZ.

You are incorrect here on several fronts.
a) There is a seperate daily line charge as well as a consumption charge, I know of no one who has a one off integrated charge in NZ. You are in NZ arnt you?
b) Solar charges may mean poor families pay or it may not depending on the refund. This is offset by,
c) Typically a utilities biggest profit is in peak charging for businesses. Take Germany for instance, the peak charges have been gutted, hence businesses enjoy cheaper power.
d) If vector has a bigger line cost, then it will be passed on, yes, see c) however.  Plus regulations.
e) Renewables, is a max of 72% and we need 100% ASAP, no ifs no buts.
f) Rooftop solar on new houses and indeed solar hot water make economic sense and will just get cheaper, tomorrow has arrived.
regards

Meridian as a company seem to have a different more supportive policy towards solar than all other retailers into Auckland at least. That may just come from a different philosophical background, or more likely is a result ot their circumstances being a predominantly lower Sth Island producer. I assume most Auckland based solar owners are with Meridian.
Meridian pay 25c for the first 5 kwh per day, but have a relatively high daily charge of $1.83, so these amounts balance each other out. Then they pay 10c a KWH. (Others offer ~5-7 cents). The average NZ wholesale price seems to be about 7cents a KWH, without lines charges, so they pay slightly over that, but they are getting power produced in Auckland for Auckland consumption, so are not having to pay lines charges from the South Island. They charge ~25c a KWH used. They haven't paid anything for the solar capital. So for them it seems to make sense to me. If enough Aucklanders have solar power then the lines in arguably do not need to be as great, and even for peak times, can come from shorter distances, given less water has had to flow down dams to generate power during sunlight hours, so more relatively local capacity should be available overnight. Bring electric cars on, and the battery useage works just as well, with cars being charged during the day. Less infrastructure should be required if production is local.
In summary, whether solar is subsidising others, or being subsidised by them, is nuanced, and is likely to be a different answer depending on tipping points for new generation, and for new lines.

Way wrong on basic facts JB.  I have today paid a power bill of $67.16 ex GSt.  Low because I am only there about one third of the time and because it is super eco and rarely requiring heat.
Electricity charge $28.63 and daily fixed charge $38.53.   So even if I turn off the mains for the month, and remained connected, it would still cost me $38.53.
Low users, even no users, pay their way.
That said, I would agree there does need to be an even clearer separation.   Completely separate amounts for the lines company and the energy company.  Easy enough to do, even on the same bill.

Try Powershop if you are able to KH, No line fee charge as it's built into the unit cost and you only pay for what you use unit by unit. .  Over summer my total power bill is about $25-$30 per month, and winter only about $80, I use gas for hot water but still a really cheap option

Thanks finance gal.  Always happy to follow up when I can cut costs, especially when that action has trailing benefits for years perhaps.
But essentially I am happy to pay line charges separately, as they are a service provided and it costs to construct.   It's good to see what that component is.
As a national policy, line charges should be completely separated out, and transparent.   Distributed solar generation is a game changer.    The grid system of the future is not going to be the one we have now. Government needs to adapt it's regs to fit with new technology