By Amanda Morrall
In the past few weeks, the debate over the SOE floats has been hot and heavy, and not just in the hallowed halls of the Beehive where politicians have been duking it out.
During a recent interview on national television (see above), I had an intense grilling 20 seconds before I went on camera by the host who was rabidly opposed to the sale. I tried to explain that a) I wasn't a politician so don't shoot the messenger b) I am a financial journalist but not a broker, fund manager or clairvoyant and c) that given it was a fait accompli the ideological debate boat had sailed so let's move on. The question now is whether it makes sense for individual investors.
In my wide ranging conversations, with a network of friends I have discovered some curiously incongruous positions in this country. The consensus, from those I know and who shall remain nameless, is that while the move is questionable (at best) from an economic perspective, it's a no brainer for investors. Now as I pointed out last week in a previous edition of my column, the decision is ultimately a personal one that needs to be squared with a whole range of financial considerations.
For that, it would be wise to seek financial advice from someone qualified to give it.
My personal view is that on the surface, this actually seems to be a reasonable investment opportunity.
1) Although the pricing has yet to be announced, it is likely to be attractive. Why? Because of the time, energy and resources poured into this political hot potato, Government needs these IPOs to be successful so they'll want to get it right with Mighty River Power. To do that, John Key will have to do better than the usual rhetoric. Government will need to offer the appropriate inducements to the investing retail public, folks who wouldn't ordinary invest in the share market but whom make up the thousands with $108 billion in stuck in lukewarm term deposits.
2) Interest rates. In this low interest rate environment, which doesn't look to be going away anytime soon, investors are desperate for returns that will beat inflation after tax be above what they're getting at the bank. Given the profitability of power companies thus far, who have generated a return on investment to the government of over 16% per year on average for the last 10 years, investors would appear to be in store for something resembling a decent return.
3) Government control. Despite all the hang wringing about foreign investors having their fingers on the national thermostat, Government is not relinquishing its power over the power companies altogether. They will still be regulated by virtue of the 51% majority ownership it will retain thus offering some assurances of stability.
A light bulb moment
The most compelling reasons for me, as a would be investor, have to do with practicalities.
The first light bulb moment was on Saturday morning when I opened my latest power bill to discover that it had more than doubled. I knew the bill shock was coming but nothing quite prepares you for it; NZ$250 for a family of three, living in a house that despite discriminately used electric heaters remains cold.
The second came after I had unloaded a trailer full of firewood in my garage and just about knocked the neighbours' fence over while I was driving to reverse the trailer out of my long skinny driveway. As a first time trailer driver, I was unaware of the jackknifing effect caused by the reverse rules of wagoning. Regretfully, they didn't teach this practical skill in journalism school.
I fought back tears as I remembered the ease and warmth of central heating in Canada and I cursed myself for not having been more organised to stock up on firewood (to reduce the blow of the bill shock) before the waiting time for delivery (for now sodden mid-winter firewood) had turned into two weeks.
The experience, which I will put in the category of character building, reaffirmed for me that as long as the majority of housing stock remains cold, draughty and uninsulted in NZ (75% according to the Energy Efficiency and Conservation Authority (EECA)), the demand for power, particularly those who do not relish living like a pioneer, will be high.
You can either moan about it, move to Australia, or wait until global warming transforms of a nation of ice boxes until sauna baths. Alternatively you put some skin in the game and with the profits buy insulation and double your long-term return.
35 Comments
Amanda, you are not only a messenger - you are a person advertising a bad solution.
It is like alcohol ads in TV. You are "TV" but the "ad" is what you present.
It is just message but human brains treats it as given by journalist that knows better - similar like Hannover ads for bad weather....don't complain that you are just messenger.
Good on you and good luck.
P.S. not sure about your houses, but put insulation and thermal curtains on top of your priority list.
Then probably a high COP heat pump. You may not save much in electricity in the end but the house should be much more comfortable for you and your boys.
Your electricity bill does seem high - have you checked your numbers? Yes there has been a few cold snap lately, but my house with 2 electrical heaters (moved around during day and night) up most time (with timer and on low wattage), a dehumdifier, 3 adults and a toddler in a 4 bd home cost me $150 last month in electricity (powershop) and another 60 in gas (hot water n cooking).
Ivan, firstly the government isn't selling off 49% of these assets. Taxpayers are selling them off. And some will be buying back into them.
Secondly, selling down 49% of these assets will give a much bigger cash injection to the government than an annual dividend would. Much more cash for buying votes with at the next election.
Thirdly, National have a mandate.....
Hamish there is a basic difference between a one off lump sum (the proceeds of selling 49% of the energy soes) and the loss of a flow of income from dividends. You cannot compare the one off income form the share sale with just one year's loss of dividends. You need to account for the loss of dividends in perpetuity. When you do that selling the shares costs more than the one off earning. It just confirms how stupid the whole idea of selling down the shares is.
Amanda shoud read up on Passive Solar housing. We had a 3.5 degree frost last night, and it hasn't thawed in the shade - but the house is 25 deg inside with no artificial heating. Sun only did that.
And she shoud get her draw-bar extended. It maked backing much easier (the trailer turns slower) and you can carry longer loads legally/safely. It trails better too.
Amanda, You do get the fact that such an "investment" is self defeating unless you already have off the grid power! Otherwise you are just shooting yourself in the foot.
Any profit you make from dividends will be coming from YOUR OWN pocket via your new annually inflated power bill!
Just so stupid. This is why ALL 'necessary to life infrastructure' MUST be owned and controlled by (real democratic) governments. We are just buying into a NZ ENRON scheme/scam!
Next it will be all NZ water supplies with Maori already wanting 100% ownership! Unbelievable the mistakes this country is making.
Justice - not quite. It's a zero-sum game, but the shareholder/consumer will win in comparison to the non shareholder/consumer.
Me, I find it hard to do that to my fellow kiwis.
But then:
http://www.youtube.com/watch?v=BmiXqh0wrTg
I'll have to do another vid - we're three years down the track now, and it's putting out twice what it was back then. Power bill? Haven't had one since Feb 04. Total cost? $4,200. That includes the lighting, switches, the board, batteries, panels, everything.
Off-grid is now cheaper than 'on', so I guess it'll be like investing in Telecom, long term.........
As stated: haven't had one since Feb 04. Meaning we have been totally off-grid that long.
Water is best, it's 24/7. Wind is worst, it's mechanical (failure) noisy, and intermittent. Solar is between. Silent, non mechanical, now down to 65c a watt (we bought at $12 a watt, in '04) and at that, you'd choose to be off grid if you were starting from scratch.
Energency? We haven't had a failure ever, really. Too many backup options (solar, the pelton, a generator, 2 battery banks, in the early days we even clipped to the 'genny' on the LD28 diesel in the old holden).
Power is a good bet, but ye'd best be leery of Flighty Shiver and Nemesis, because they jest might find theirselves paying back rent.
Equator might be the best bet, but it's third horse off the block.
But really, chaps and chapesses, with the way ECan is demonising wood fires and PM10, none of these generator types need do any advertising for some time, and the same goes for purveyors of heat pumps, pellet fires or other power-dependent sources of hotness.
But at the Home Show, solar PV is down around $3/watt installed, so it's starting to look attractive.
And while we can all admire PDK's array of alternative sources, most of them are little use in urban settings - noise, water rights, space and height restrictions are our lives, and ye haveta go into battle with the army ye have, not the one ye wish ye had. Solar PV is the probable alternative, even tho' the real deal - building-integrated PV skins - is as far away as ever.
Wrong. PV is actually down to 65c/wat, if you buy by the container-load. There is a business model around which will sell you the system in instalments, each payment under the grid per-unit cost. Thats NOW. It can only get cheaper. Grid ownership is for dinosaurs.
And Waymad - how long (as globally we go through capital destruction / see the end of growth) do you think those 'rules' will hold up?
We could only have such a complex society with a cheap and available energy source, and the fossil oil peak ended that. The question is whether social/fiscal cohesion stays intact, because it it doesn;t, the grid is a question-mark, fiscally and maintenance-wise.
PDK,, where do you go to get this PV? Are you running a business? My home is in Christchurch and while I love my underfloor heating it Is just too expensive to run. Mine is just under the carpet not in a concrete floor and only in the living room, kitchen and hall. If I had it on 24/7 it would cost me around $1300.00pm to run it. In the summer my bill is around $100.00 so the difference is heating. I am currently looking at a vented heat pump but this PV sounds so much better.
Patricia - no, I don't 'run a business'. (If I've got it right about what is happening globally, that's a historical approach). I do what I do for the good of all, and always for free. Life's too short - and too good - to waste.
Even on Trademe, PV is down to $2 a watt. 65C is if you get a container-load in, which folk are doing, and it's not that difficult. You sell the remainder on trade-me to recoup your costs..... :)
You need a heat-sink. You mention 'hall, so I'm guessing wooden house, wooden floor? Needs thermal mass. I've just done one of my columns, about retro-solar, but it is 2 months from the magazine stands. You'd be better looking at heating water, and using radiators. The heat energy would store in the water, much better than carpet/wood.
Heat-pumps are better than heaters, thanks to the reverse-refrigeration effect, but they are essentially air-conditioners working backwards, and I'm not sure how long they live........ And grid-power will just get more expensive, for various reasons.
Contact me directly via my blog (powerdownkiwi.wordpress.com) and I can point you to more
Mist - we handle it with passive solar; as I said, you need a thermal mass. Storage. We do it with direct sunlight, and can last 3 cloudy days from one day of sun. There's no reason in the world, why that can't be done via PV. I mentioned water, as it's the best thing to take your heat - the molecules move away when heated, like taxis off a rank.
I'd rip up the floor, put down sealed-both-sides polystyrene sheets, lay in water-piping, back the concrete truck up to the window, and float it off. Long-term payoff guaranteed. Chill-factor underfloor nil.
Dratts? Air is not the best retainer of heat anyway - look for better mass. Our house is so sealed, that when we ran the woodstove, the cat-flap swung inward. I ran a 90mm pipe in from outside, to the front of the firebox - and the house air stays inside.
Occasionally we wake up. :)
Solar is getting very interesting. I would still want to be connected to the grid, more for practicality, as I don't want to have to manage demand and storage etc. Really you just want it to work. You don't want to be checking dials all the time.
"What ths country needs is clear policy and good regulation about the deal the home producer can make with a power company. We don't have it currently and it would be good to have a guarantee of the deal you could rely on.
Is it Meridian ? who have decided to review the deal they have with home generators. Because of the steep rise in people joining up. Currently the price for power into the power company is the same as for power out. Which is a great deal for the homeowner, but you would expect the power company to change that one.
We do need to know where we stand - and law and regs would do that.
One of the things about this is not that change in technology, but the change of attitude about investment. New Zealanders have not invested much for long term benegfit. This power thing is a good change for the better in investing approaches.
KH - if you keep under 50 volts, you can do it yourself. I expect the feed-in payment to go below 1:1 soon, and to continue dropping. After all, you're selling them what they want to sell to you.
Staying off grid leaves you out of their clutches. In 7 years of no power bills, for a $4,200 outlay, we've saved so much it's a joke.
But be fair, pdk .. what you power with your homegen is very modest - at least if the 2009 article still holds;
http://www.odt.co.nz/your-town/dunedin/41143/life-grid-one-pioneering-family039s-experience
Here's another thread discussing a specific recent installation;
http://www.lifestyleblock.co.nz/lsb-forum/showthread.php?p=407138
FYI from a reader via email:
Dear Mr Hickey
I am considering adding to my share portfolio when the Government partial sale of the State owned Energy Companies and the down sizing of the Government's share holding in Air New Zealand come to fruition.
I have two questions:
1. Winston Peters has already expressed the view that a future Government should buy back the shares. Could this be done in a compulsory manner at a price set by the Government? Could a future Government (bearing in mind that they will have at least a 51% shareholding) stop the dividend stream (and invest the profits in future developments), thus making it far less attractive for private investors to hold the shares?
2. I already have a holding of Air New Zealand shares. What is the most likely way in which the Government might float more Air New Zealand shares onto the market, and what impact is it likely to have on the share price of those shares already owned by private investors?
I would be most interested in your comments, as would I believe many of your followers, who might be considering buying shares in the forthcoming Government share offer.
I look forward to hearing from you.
Kind regards Peter
Peter
1. A future government could do whatever it liked if it owned 51% of the shares. That's part of the risk.
2. We don't know yet how the government plans to sell more Air NZ shares. They could 'place' them with institutional investors or sell them more broadly to mums and dads. I doubt it will happen any time soon, given the low Air NZ share price.
cheers
Bernard
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