Who's in for the Mighty River Power float?

[chad321]

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10890467

[Aaron]

Interesting to read in the Herald this morning of the investment banks and stock brokers who helped price MRP now value it at less than $2.50.
At least Goldman Sachs & Macquaries stand by their initial valuation. Maybe they have more experience in deceit and know how to play the game properly.
That said I made my own decision and will live with it but disappointing the brokers and banks got paid good money to value MRP and it appears they got it wrong or deliberately overpriced it.

[blackcap]

Very interesting too the headline in stuff... about people not getting nervous and holding on.......

'Stick with MRP' - advice
A brokerage report says investors sweating the slide of Mighty River Power shares should hold..

Report out by For Barr. But if you read between the lines its a screaming sell even though their official recommendation is "hold" :)

[Joshuatree]

Yes craigs have a very similar report. There was a blanket moratorium on research until recently i believe. Who would invest in a stock with that cloak over it, who was aware of it.?

[Hoop]

Not often I go to the defense of brokers over target pricing....:)

To be fair it seems MRP $2.50 listed price was nearly spot or maybe $2.45 using yesterdays hindsight.

OK it is 2.28 (-2) today but what you investors have to remember is that you bought MRP at a sharemarket top before its bull market correction started....The listed price was the product of assessing the Mr Market's position as well as the MRP fundamentals around the beginning of May..

To be honest..the book build result seems fair to both parties and as expected fell within the $2.35 - $2.85 range. With IPO book builds there's always a bit of mystery as to what the list price will be...its something that us investors outside the loop get use to over time.

Since the 20 May until yesterday the NZX50 has dropped 4.4% (not on Chart) ..obviously not all sectors fall equally during corrections/reversals...It just happens that the power sector has dropped a tad more than the NZX50 index.
A falling tide lowers all boats and just because MRP has been listed just over a month it does not make it immune to an overall market correction.
Investors have to be made aware that market corrections happen often....buying into an oversold market at that time the risk was always there that a correction was imminent.
The Greens have always telegraphed their anti-business stance so no surprises really...It knee jerked the Utility market sector but reality I think you will see risk levels rise in all market sectors and their prices revalued accordingly should the Green momentum and popularity keep up towards election time.

http://i458.photobucket.com/albums/qq306/Hoop_1/MRPvCEN19062013.gif (http://s458.photobucket.com/user/Hoop_1/media/MRPvCEN19062013.gif.html)

[Aaron]

Hoop the voice of reason. Can't take out my frustrations on investment bankers and brokers now.

[RTM]

With luck JK is now forced to retain our hard earned assets. I am "happy" to take a haircut.....if that is the outcome. Fingers crossed.
RTM.

[J R Ewing]

With luck JK is now forced to retain our hard earned assets. I am "happy" to take a haircut.....if that is the outcome. Fingers crossed.
RTM.

I concur with that, especially the quotation marks around happy!

[Tyro]

Brrrr. Is it any consolation that storms like this boost demand and inflows.

[fish]

Brrrr. Is it any consolation that storms like this boost demand and inflows.

Depends-if demand is high and you cant produce enough power for the demand from your domestic costumers and you are forced to buy on the market you could be paying 10 times the normal going rate-as is happening now in the north island whilst power is costing virtually nothing in the south island.

[CJ]

Depends-if demand is high and you cant produce enough power for the demand from your domestic costumers and you are forced to buy on the market you could be paying 10 times the normal going rate-as is happening now in the north island whilst power is costing virtually nothing in the south island.http://www.em6live.co.nz/PlanningRegion.aspx?planningregion=uni

Current $5 in the SI and $500 in the NI so I make that 100x differential. That need the cook strait cable working asap!

[fish]

http://www.em6live.co.nz/PlanningRegion.aspx?planningregion=uni

Current $5 in the SI and $500 in the NI so I make that 100x differential. That need the cook strait cable working asap!

That's what I first thought but Transpower have just said no problems with national grid-so far just lots work for lines companies with a lot of wellington region out of power .


looking at your link most power in the north is being produced by gas so I guess contact with its diverse generation assets should be making mega profits and mrp could be suffering.

[CJ]

looking at your link most power in the north is being produced by gas so I guess contact with its diverse generation assets should be making mega profits and mrp could be suffering.Its not that simple. They have to supply their own clients first which I think are reasonably balanced for both CEN and MRP but is it balanced geographically. CEN has alot of SI hydro which is of no use to its Auckland customers, hence they will be burning lots of gas at their south Auckland plant. But will they also have to be buying some of MRP's expense north island hydro, while selling its cheap south island hydro to MRP for its south island customers? (note by cheap/expensive, I am talking about the spot price, the cost of generation for both is next to nothing as the Greens will testify too).

[fungus pudding]

http://www.em6live.co.nz/PlanningRegion.aspx?planningregion=uni

Current $5 in the SI and $500 in the NI so I make that 100x differential. That need the cook strait cable working asap!

The difference between $5 and $10 is 100%.

....but now that I've put my glasses on what looked like 100% is actually 100x. Full marks after all. :cool:

[mouse]

does anyone know what the projected EPS % is at $2.30 a share.
And at $2.20 a share please. Any other offers?

[Frankenstein]

From Stuff this morning: http://www.stuff.co.nz/business/industries/8851818/Uncertainty-still-dogs-MRP-shares

[Banksie]

From Stuff this morning: http://www.stuff.co.nz/business/industries/8851818/Uncertainty-still-dogs-MRP-shares

Welcome to the forum Frankenstein. (lol - how often does one get to say that?)

The article doesn't paint a very rosy picture for the SP - $2.35 one year out, right at the bottom end of the initial offer range.

[minimoke]

The article doesn't paint a very rosy picture for the SP - $2.35 one year out, right at the bottom end of the initial offer range.
More importantly it is below the $2.50 paid by mom's and pops who will be voters in a years time. I can't see this boding well for future SOE sales. How can the MRP sale be spun as a success?

[Banksie]

More importantly it is below the $2.50 paid by mom's and pops who will be voters in a years time. I can't see this boding well for future SOE sales. How can the MRP sale be spun as a success?

Totally agree. I was one of the M & P's. Took a small punt thinking that the offer price would be at least fair enough to maintain value.

[gv1]

This will start rising from july, Fund managers purposely selling under IPO price.....

[Banksie]

This will start rising from july, Fund managers purposely selling under IPO price.....
Why are they doing that? and if they are why would they stop in July?

[gv1]

Why are they doing that? and if they are why would they stop in July?

You not by any chance fund manager.... MRP will be determined in top 10 index. Reason is simple...make money from the vunerable.

[Jasemc]

Yes only way is up for mrp

[Banksie]

You not by any chance fund manager.... MRP will be determined in top 10 index. Reason is simple...make money from the vunerable.

Lol - no not a fund manager. I forgot about the inclusion in the index...so yes I guess that will add some buying pressure.

[minimoke]

Yes only way is up for mrpreally! Down 1.3% today at the moment with support running at $2.20

[Snoopy]

More importantly it is below the $2.50 paid by mom's and pops who will be voters in a years time. I can't see this boding well for future SOE sales. How can the MRP sale be spun as a success?


You can't blame the Mom and Pops for paying too much. It was the institutional investors who set the price, so you have to blame them if the price was wrong. Commentary in the media was that it was the overseas institutions that have been doing most of the subsequent selling too.

It is all very well having overseas institutional investors on the share register, but they are always the first to head for the exits should the market wobble. John Key may have got a good price for the government's MRP shares, but possibly at the cost of sinking the other two upcoming power company floats. If he had sold all of the shares to New Zealanders and New Zealand institutions I believe the final MRP sale price may have been a little lower, but it would have held up much better.

SNOOPY

[POSSUM THE CAT]

Posters getting closer to my buy orders on both sides of the Tasman all the time, & wrecking J Key's asset sales plan rapidly.

[Master98]

Seems like MRP quite soon to be included in NZX10.

[Jasemc]

What company will drop out of nzx10?

Seems like MRP quite soon to be included in NZX10.

[Arbroath]

What company will drop out of nzx10?
I'd say Infratil is for the chop....

[bull....]

Looks like it may be heading back over 2.50 ( think about it )

[Balance]

Looks like it may be heading back over 2.50 ( think about it )

Indexing to be announced this week.

Tracker funds have to buy.

[Banksie]

Indexing to be announced this week.

Tracker funds have to buy.

Do index tracker funds only react after the announcement or have they been buying anticipating the announcement?

[CJ]

Do index tracker funds only react after the announcement or have they been buying anticipating the announcement?In theory, a true index fund cant buy yet as they aren't in the index - When TENZ first listed, its mandate was very restricted due to a tax ruling it had (to treat all gains as capital). I'm not sure if they changed once the tax ruling was no longer required. If not a true index fund, then it may be the option in their investment mandate. Active funds that hug the index so their performance isn't worse can obviously buy when ever.

[Banksie]

In theory, a true index fund cant buy yet as they aren't in the index - When TENZ first listed, its mandate was very restricted due to a tax ruling it had (to treat all gains as capital). I'm not sure if they changed once the tax ruling was no longer required. If not a true index fund, then it may be the option in their investment mandate. Active funds that hug the index so their performance isn't worse can obviously buy when ever.

Thanks CJ.

[Snoopy]

Having just done this exercise on Contact Energy, I thought it worthwhile to transfer my cost estimates and see what could happen to Mighty River Power. Of course, at this point we cannot be sure what returns on those long paid for power assets will be deemed 'acceptable' by a Labour/Greens Minister of Energy. But we can assess what will happen in 'relative terms'. If I assign Contact Energy, the power company that I believe will be one of the least affected of the big five a value of 'Zero', then what will happen if I apply the same power station valuation model to Mighty River Power?

Unlike Contact Energy two of MRPs power stations are joint ventures. Mokai, on the Mokai geothermal field is only 25% owned. So I am picking this would not be consolidated into the MRP accounts under current accounting rules. Nga Awa Purua (geothermal) is 65% owned by Mighty River Power. So I am assuming this is fully consolidated, with the minority interests only removed later at the bottom of the income statement.

The latest MRP station Ngatamariki (geothermal) will reportedly cost $475m when up and running. However, this is very expensive compared to the contemporary Te Mihi station being built by Contact Energy on a dollars spent per energy out basis. I am forced to assume that the $475m includes some land acquisition payment (anyone know?). So I have reverted to Te Mihi costs when pricing out replacement values of the wearing parts (turbines and associated electrical switchgear). OK let the costing analysis begin.

SNOOPY

[Snoopy]

OK let the costing analysis begin.


Power stations owned and operated by MRP, with estimate of cost of new turbines and related equipment are as follows:

Hydro:

Aratiatia 78MW (comm. 1964) $100m (+ $150m dam)
Ohakuri 106MW (comm1961) $120m (+ $150m dam)
Atiamuri 74MW (comm. 1958) $100m (+ $150m dam)
Whakamaru 100MW (comm.1956) $120m (+ $150m dam)
Muraetai I & II 352MW (comm. 1952, 1970) $450m (+$450m dam)
Waipapa 54MW (comm. 1961) $100m (+ $150m dam)
Arapuni 184MW (comm.1929, 1938, 1946) $250m (+$300m dam)
Karapiro 96MW (comm. 1947) $120m (+$150m dam)

Gas:

Southdown 175MW (comm. 1996) $350m

Geothermal:

Ngatamariki 82MW (comm. 2013) $300m
Nga Awa Purua 138MW (comm. 2010) $550m
Rotokawa 34MW (comm. 1997) $150m
Kawerau 100MW (comm. 2008) $400m

Total Turbine & Ancillary Cost for MRP: $3,110m

Total Dam Valuation for MRP: $1,650m.

Please note here that I am not suggesting that all of these dams can be rebuilt for $1,650m. But IMO an historic dam must have some value assigned to it to allow for representative repairs to be done and accounted for at a latter date, and some kind of depreciation to be assigned. The dams have been valued by benchmarking them against the implied book values of the Contact Energy owned dams.

Adding the two figures together, I get a total power station valuation of $4,760m.

I see the book value of all assets that can be attributed to generation on the MRP balance sheet as $5,245m.

$4,760m/$5,245m = 91%

So I expect the money that MRP will receive for its power by a single regulated power authority to be legislated down in gross value terms by 10%. Of course because actual fixed costs will not decrease, I expect the actual profit for MRP would fall by rather more than 10%.

SNOOPY

[Snoopy]

So I expect the money that MRP will receive for its power by a single regulated power authority to be legislated down in gross value terms by 10%. Of course because actual fixed costs will not decrease, I expect the actual profit for MRP would fall by rather more than 10%.


Have just run a legislated reduction in the amount charged for power by 10%, against the pro-forma forecast FY2014 income statement (p111 of the MRP prospectus).

I have reduced total revenue from $1,385m to $1,247m. Because the asset values have been reduced by 10%, it should follow that the ongoing depreciation is 10% lower as well. So the 'Depreciation and Amortization' charge reduces from $169.4m to $152.5m. Hold all other costs constant and by my calculation the NPAT reduces from $160.4m to a mere $39m! In share price terms if the market valued MRP at $2.40, it would only be worth 60c after a Labour/Greens Energy minister applied their deemed return on asset rules. That would be a pretty big haircut to take on what on paper is a 'conservative' investment!

SNOOPY

[Snoopy]

Have just run a legislated reduction in the amount charged for power by 10%, against the pro-forma forecast FY2014 income statement (p111 of the MRP prospectus).

I have reduced total revenue from $1,385m to $1,247m. Because the asset values have been reduced by 10%, it should follow that the ongoing depreciation is 10% lower as well. So the 'Depreciation and Amortization' charge reduces from $169.4m to $152.5m. Hold all other costs constant and by my calculation the NPAT reduces from $160.4m to a mere $39m! In share price terms if the market valued MRP at $2.40, it would only be worth 60c after a Labour/Greens Energy minister applied their deemed return on asset rules. That would be a pretty big haircut to take on what on paper is a 'conservative' investment!


I have to admit that I am surprised about the savage effect a 10% cut on revenue would have on MRP. $39m of earnings against $1.1billion of loans on the books, would suggest to me that MRP might be in breach of its banking covenants if such a policy was adopted. Shareholders, including the government could be facing a large cash issue to square up the balance sheet! The government would surely not shoot themselves in the foot like this, would they?

SNOOPY

[minimoke]

I have to admit that I am surprised about the savage effect a 10% cut on revenue ......
SNOOPY
Great work snoopy. No surprise really - it illustrated the difference between gross and net. So say you did your model on a 10% reduction in net profit (where arguably the gouging takes place)

[CJ]

I have to admit that I am surprised about the savage effect a 10% cut on revenue would have on MRP. Even before you more detailed calcs, Greens suggested their changes would result in a 10% reducing in power prices.

But, that just proves that the power companies are not super profitable. $5B of assets less $1B of debt and they only make $160m in profit.

[Snoopy]

Great work snoopy. No surprise really - it illustrated the difference between gross and net. So say you did your model on a 10% reduction in net profit (where arguably the gouging takes place)


A 10% reduction in gross profit puts $137.5m back in the hands of MRP consumers. A 10% reduction in net profit would put a mere $16m back in the hands of MRP consumers. That is a mere 1.1% reduction in power prices as seen by the consumer. I am fairly sure the Labour/Greens policy was meant to deliver more than that. To win votes, they will surely have to attack those gross power charges? A 10% reduction in your power bill sounds much more a vote winner to me! I think my calculation is correct as it stands.

SNOOPY

[Snoopy]

Even before you more detailed calcs, Greens suggested their changes would result in a 10% reducing in power prices.

But, that just proves that the power companies are not super profitable. $5B of assets less $1B of debt and they only make $160m in profit.

I agree CJ, but the Greens/Labour would claim that the $5b in assets is inflated. And inflated capital values are what is behind the power overcharging. Which brings us neatly back in a circle to the start of my calculation argument!

SNOOPY

[robbo24]

The stinkin' commies would be better to use their time, effort and money to make houses more energy efficient as a means of reducing power bills. Consumers are throwing away valuable energy with poor insulation, bad management, etc. Reducing the net price of power will do nothing other than cause people to use more power.

[CJ]

I agree CJ, but the Greens/Labour would claim that the $5b in assets is inflated. And inflated capital values are what is behind the power overcharging. Which brings us neatly back in a circle to the start of my calculation argument!Getting in to politics but their rational is flawed. I (hypothetically) have owned a rental property for 20 years. Based on tehir power policy, the rent I can charge is limited to Opex costs and a fair return on the price I paid for it 20 years ago which due to inflation is nominal. Taking it to its extreme, it is actually a 1950 brick & Tile so the return should actually be based on building cost which was probably about 500 pounds. However, for insurance purposes, I have to insure it for cost to replace which is $500k (excl land).

[fungus pudding]

Getting in to politics but their rational is flawed. I (hypothetically) have owned a rental property for 20 years. Based on tehir power policy, the rent I can charge is limited to Opex costs and a fair return on the price I paid for it 20 years ago which due to inflation is nominal. Taking it to its extreme, it is actually a 1950 brick & Tile so the return should actually be based on building cost which was probably about 500 pounds.

Which of course would lower the rental able to be charged by all landlords. Being able to adjust to market demand is what ensures a reasonable supply of rental housing. No different from electricity really.

[CJ]

Which of course would lower the rental able to be charged by all landlords. Being able to adjust to market demand is what ensures a reasonable supply of rental housing. No different from electricity really.But who is going to build a new house (power station) when the returns dont justify the investment. It doesn't make sense to pay different prices for the same commodity.

[fungus pudding]

But who is going to build a new house (power station) when the returns dont justify the investment. It doesn't make sense to pay different prices for the same commodity.

Nobody will. Don't tell the Greens though - they won't believe you. Labour, or at least Parker, realises that of course but wrecking the economy doesn't worry them. Picking up a few votes is more important to them

[bull....]

Key events to watch - index inclusion , operating results , all this mth tewai pt settlement , meridian sale next few mths


whats the factor in what will happen to profits share price etc if national win the election ?

[CJ]

index inclusion - positive
results - unknown
tewai - if it stays open, big positive, if it closes, negative as no future growth. Having said that, MRP is short on generation. How much is factored into price already? 50:50 chance?
Meridian - probably negative as we may see funds exit MRP to buy into Meridian
National win - big positive especially is this is a key policy for the left in their electioneering.

[Snoopy]

Which of course would lower the rental able to be charged by all landlords. Being able to adjust to market demand is what ensures a reasonable supply of rental housing. No different from electricity really.

No, not the same as electricity as the Greens/Labour power policy will set up a single buyer of power.

The housing analogy would be to set up a single agency through which all rental houses would have to go. If they ran out of houses to rent, then tenders would be called for private landlords to build new houses. The cheapest quotes to meet demand would be accepted. Then all rents over the country would rise to pay for these new houses bought at 'today's' prices. Spread over all of the rental housing stock in the country, the 'rent increase' would not be much on a 'per house' basis.

Whether you agree with the policy or not, in theory it could work, although it would work better in the electricity market where power is a true commodity.

SNOOPY

[Snoopy]

But who is going to build a new house (power station) when the returns dont justify the investment. It doesn't make sense to pay different prices for the same commodity.


The lowest cost private tender will build the new power station. The power from that new station will be expensive, because the 'dam' (fill in the power station chosen) will be built at today's cost. But that cost will be amortized over all power sold from then on. So in overall terms the price of power should not rise that much.

SNOOPY

[Snoopy]

Key events to watch - index inclusion , operating results , all this mth tewai pt settlement , meridian sale next few mths


whats the factor in what will happen to profits share price etc if national win the election ?

Very little effect if there is a National lead government on the MRP share price I would predict. Slowly rising interest rates would probably cancel out the resolution of political uncertainty. Power shares are not exactly cheap, given a low to no growth outlook.

SNOOPY

[Master98]

MIGHTY RIVER POWER LIMITED TO BE ADDED TO NZX 50 INDEX
5:01pm, 12 Jul 2013 | INDICES


https://nzx.com/regulators/NZXO/announcements/238563

[bull....]

MIGHTY RIVER POWER LIMITED TO BE ADDED TO NZX 50 INDEX
5:01pm, 12 Jul 2013 | INDICES


https://nzx.com/regulators/NZXO/announcements/238563

should create some buying by funds

[bull....]

I'd expect they'd already be "well positioned" as MRP had to join the NZ50

On an entirely different subject ... Is MRP in a short-term uptrend?

It depends on the funds mandate if they are allowed to buy before the inclusion date , if they are nt allowed then buying will be done after inclusion.
todays price action very bullish

[RTM]

Pleased to see this. Nothing like a fresh set of eyes.
https://nzx.com/companies/MRP/announcements/238733

"7. On the basis that the information provided to NZXR is full and accurate in all material respects, NZXR declines to grant MRP a waiver from Rule 3.6.3(f) to permit Brent Penrose to lead EY’s audit of MRP’s financial statements for the financial year ending 30 June 2014."

NZXR doing what they should do.

[bull....]

looking good for 2.5 next week hopefuuly

[Hoop]

I'd expect they'd already be "well positioned" as MRP had to join the NZ50

On an entirely different subject ... Is MRP in a short-term uptrend?
Yes Belg... its been in an uptrend for 3 weeks now

[CJ]

Pleased to see this. Nothing like a fresh set of eyes.
https://nzx.com/companies/MRP/announcements/238733

"7. On the basis that the information provided to NZXR is full and accurate in all material respects, NZXR declines to grant MRP a waiver from Rule 3.6.3(f) to permit Brent Penrose to lead EY’s audit of MRP’s financial statements for the financial year ending 30 June 2014."

NZXR doing what they should do.There is probably a team of 20 auditors, none of which will change other than the normal attrition as the junior staff go to the UK on their OE.

The lead partner does none of the detailed work but covers all the big issues. There should be a transition (former lead partner helps the new lead partner for a year) so I dont really see why they bothered.

I'm surprised there isn't a second partner to step up who was deeply involved in the IPO process. To much risk to have just one partner on it.

[Baddarcy]

Yes Belg... its been in an uptrend for 3 weeks now

hmm some big numbers on the sell side this morning.

Wonder why they didn't mask them? Believe you can mask if the order is for more than 100k? (from my memory anyway, please correct me if im wrong?)

[Snoopy]

MRP Capital investment over the last ten years from 2003 to 2012 inclusive is as follows:

$25m, $50m, $108m, $148.4m, $183.5m, $317.7m, $289.2m, $390m, $220m, $362m

That adds to a grand total of $2,093m

Meanwhile on the opposite side of the ledger depreciation (excluding software depreciation) was as follows:

$46.4m, $48.5m, $49.4m, $79.2m, $81.0m, $71.1m, $94.6m, $104.8m, $126.2m, $136.0m

That adds to a grand total of $837m

Looked at another way over the last ten years, the ratio of depreciation to capital investment comes out at 0.4. For reference look at my post 579 on the Contact Energy thread and the same ratio there comes out at 0.489.

So capital expenditure over a ten year period has greatly exceeded depreciation. Why does this matter, I hear you ask?

SNOOPY

[Snoopy]

So capital expenditure over a ten year period has greatly exceeded depreciation. Why does this matter, I hear you ask?


Power generation is a capital intensive business. If a company is generating profits, but at the same time depreciation is exceeding capital investment, this is an indication that the assets of the company are being run down. Ultimately that means the declared profits are illusory because when those capital assets ultimately wear out the company will not have the cash to replace them. However, in the case of MRP the capital asset spending is higher than depreciation. This is good from a long term perspective, but it also exactly what I would expect. That is because I believe the cost of buying a new gas or hydro or steam turbine will have risen substantially over the working life of the old turbine it replaces.

So far so good. But this gap in depreciation verses capital investment over the life of an asset has also attracted the attention of the Labour/Greens. They rightly ask, if the depreciation is written back all the time as long term assets are revalued upwards was the depreciation ever real to start with? And if the depreciation wasn't real, that in turn implies that MRP is making windfall undeclared profits at the expense of the consumer. So what to do? Revalue those generation assets downwards and keep them down!

SNOOPY

[CJ]

Power generation is a capital intensive business. If a company is generating profits, but at the same time depreciation is exceeding capital investment, this is an indication that the assets of the company are being run down. Disagree. Capital expenditure is on new plants. Maintenance or stopping the capital investment from being run down is opex.

Sure with somethink like a fleet of cars, you need constant capital expenditure but not with long life assets.

MRP could do no capital expenditure for the next 20 years and it will still continue to generate the same amount of power for the same operating costs (cost of fuel dependent). You dont need to replate a turbine, you just swap out the internals as part of a normal opex maintenance program.

[Crisis]

BMRE is a common practice in power sector which is a capital investment.

[CJ]

My point wasn't that they wouldn't upgrade their turbine, just that no capex doesn't mean they aren't maintaining their plant.

[Snoopy]

BMRE is a common practice in power sector which is a capital investment.


BMRE a new one on me Crisis. Google came up with this:

Balancing, Modernization, Rehabilitation and Expansion (?)

SNOOPY

[Snoopy]

MRP could do no capital expenditure for the next 20 years and it will still continue to generate the same amount of power for the same operating costs (cost of fuel dependent). You don't need to replate a turbine, you just swap out the internals as part of a normal opex maintenance program.


Here is what MRP said about asset management and maintenance in their prospectus. From page 48

"Mighty River Power has an on-going asset management and maintenance programme for the Waikato Hydro System. The projected reinvestment profile is cyclical over the long term with periods of higher expenditure required at various stages, particularly as original equipment requires replacement and upgrading."

"The Waikato Hydro System is currently in a relatively high expenditure period. Mighty River Power believes its current level of expenditure is appropriate in light of the age of its hydro power stations and is consistent with expenditure on other comparable assets internationally. While much of the operating and capital expenditure has yet to be committed formally, it is expected that plant maintenance and upgrade costs will be higher over the next decade than in the last decade."

A couple of sub-quotes stand out for me in those quotes:

"an on-going asset management and maintenance programme" AND
"operating and capital expenditure" AND
"plant maintenance and upgrade costs"

In all the above cases what you CJ have similarly described as 'capital expenditure' and 'operating costs' are bracketed together. Given the amount MRP would have spent on getting this legal document right and the fact that 'operating' and 'capital' were grouped together three times I have to conclude that MRP does not want to make a distinction between the two kinds of expenses and wants to present them in a single 'bucket' for an investor analysis perspective.

However given there are two concepts here, even if MRP doesn't want to point specifically to what is 'capital' and what is 'maintenance', the paragraphs suggest to me that as an investor I should take the view that both are required. So CJ, I do not agree with your premise that:

"MRP could do no capital expenditure for the next 20 years and it will still continue to generate the same amount of power for the same operating costs"

Capital spending is needed just to maintain MRPs existing power generation capacity.

SNOOPY

[Snoopy]

However given there are two concepts here, even if MRP doesn't want to point specifically to what is 'capital' and what is 'maintenance', the paragraphs suggest to me that as an investor I should take the view that both are required. So CJ, I do not agree with your premise that:

"MRP could do no capital expenditure for the next 20 years and it will still continue to generate the same amount of power for the same operating costs"

Capital spending is needed just to maintain MRPs existing power generation capacity.


Other readers should note that the reason I am spending time on what might seems a trivial point is that from a Labour/Green perspective it is not trivial. Indeed should a Labour/Green energy minister be appointed, this small point could decide the fate of the share prices of those energy sector generators for years.

AFAICA maintenance costs can be 'time adjusted' in future years. Capital expenditure or more correctly, capital expenditure that ends up as assets on the balance sheet cannot be time adjusted and must remain at historic cost. So only a power generating company which makes an argument for sustainable maintenance of their generation portfolio will be listened to with a sympathetic Labour/Green ear. And exactly how successful a company is in communicating what maintenance charges are reasonable will largely determine the future share price performance of that company.

SNOOPY

[CJ]

Capital spending is needed just to maintain their existing power generation capacity.Then we shall respectfully disagree. If there is no improvement, then it is not capex!

http://www.investopedia.com/terms/c/capitalexpenditure.asp

And again I point out that that isn't what they will do, just what they could do. If you have an existing turbine which you could repair or replace (opex or capex) you factor in lots of things, such as upfront costs, future costs and any production gains. At some point, it would be more worthwhile to go new than to maintain - just like a car which most business replace after 3-5 years but could stretch it out to 10 if they have a cash pinch, MRP should replace after 10-20 but could stretch it out to 30. Reading their prospectus, they have indicated they have been a bit lax on their maintenance so they have to spend a bit of money over the next 10 years to bring it back up to stratch - as they do this, they will consider the new vs repair equation which is why they haven't (and cant) provide a split until it is done. Accounting rules are clear though - If there is no improvement, then it is not capex!

[Snoopy]

Then we shall respectfully disagree. If there is no improvement, then it is not capex!

http://www.investopedia.com/terms/c/capitalexpenditure.asp

And again I point out that that isn't what they will do, just what they could do. If you have an existing turbine which you could repair or replace (opex or capex) you factor in lots of things, such as upfront costs, future costs and any production gains. At some point, it would be more worthwhile to go new than to maintain - just like a car which most business replace after 3-5 years but could stretch it out to 10 if they have a cash pinch, MRP should replace after 10-20 but could stretch it out to 30. Reading their prospectus, they have indicated they have been a bit lax on their maintenance so they have to spend a bit of money over the next 10 years to bring it back up to scratch - as they do this, they will consider the new vs repair equation which is why they haven't (and cant) provide a split until it is done. Accounting rules are clear though - If there is no improvement, then it is not capex!

If I accept your accounting definition of capital expenditure CJ, then I guess it comes down to what you define as 'improvement'. The basic physics of the situation is that in a hydro dam you have a 'head' (the physical distance the water will drop down the dam) and a flow (the amount of water going through the turbine). Gravity I don't believe has measurably changed and the height of the dam has not changed. So by your definition it is impossible to 'improve' a hydro dam, unless of course you shove more water through it. But the amount of flow you can get is largely in the hands of the weather gods, not Meridian management. So I return to your premise that improving a hydro dam is impossible once it is built.

If your argument is correct CJ, then it is very good news for MRP shareholders because all expenditure since any dam was built is maintenance and nothing can be capitalized. So by your theory the capitalized value of those hydro dam assets on the balance sheet must be accurate? And a Labour/Greens Energy minister could not touch that valuation?

SNOOPY

[Snoopy]

Then we shall respectfully disagree. If there is no improvement, then it is not capex!
Reading their prospectus, they have indicated they have been a bit lax on their maintenance so they have to spend a bit of money over the next 10 years to bring it back up to scratch - as they do this, they will consider the new vs repair equation which is why they haven't (and cant) provide a split until it is done. Accounting rules are clear though - If there is no improvement, then it is not capex!


Well I read what they quote on p48 differently. I don't believe MRP admit to being lax with their maintenance and because of that they are due for a catch up. My reading of the situation is that the maintenance costs are naturally lumpy and MRP is about to encounter a 'lump' of what is long predetermined expenditure.

I do agree that MRP may have to fully stop a turbine and pull it out of the system to absolutely know if maintenance or replacement is required. But there are also measurements you can do in situ, by measuring noise and vibration for example. So I believe MRP would have a pretty good idea of the state of their turbines without having to do a full strip down and inspection.

The situation would be different with a steam turbine. In that instance advances in material technology might allow higher input steam temperatures, and that would improve efficiency. So using your accounting definition of capex, I presume you would agree with me that after say 20 years a new steam turbine would probably come in as capex (?).

SNOOPY

[Snoopy]

It is all very well having overseas institutional investors on the share register, but they are always the first to head for the exits should the market wobble. John Key may have got a good price for the government's MRP shares, but possibly at the cost of sinking the other two upcoming power company floats. If he had sold all of the shares to New Zealanders and New Zealand institutions I believe the final MRP sale price may have been a little lower, but it would have held up much better.


From a sharechat article on 17th July:

"Australian funds were among the biggest sellers of MightyRiverPower as its shares sank to a post-float low last month, though the exit may been more to do with a slump in their home market than a change of sentiment on the power company."

"Market data for the top 100 shareholders in MRP between May 24 and June 21 shows the largest reduction was by HSBC Custody Nominees (Australia), which reduced its holding by 6.1 million shares, or 55 percent, to 4.99 million."

"That saw it fall to 10th-largest shareholder from fourth. JP Morgan Nominees Australia trimmed its holding by 1.4 million shares to about 4.4 million and Melbourne-based CS Fourth Nominees sold 2.8 million shares to end up with about 1.8 million."

So it is all official and exactly as I previously suggested. John Key engineered the share price fall for MRP after listing by selling far too many MRP shares to his fly by night Australian money managing mates! I think that is a disgrace.

SNOOPY

[CJ]

So it is all official and exactly as I previously suggested. John Key engineered the share price fall for MRP after listing by selling far too many MRP shares to his fly by night Australian money managing mates! I think that is a disgrace.

SNOOPYgiven there was stuff all scaling in NZ, not entirely true but I do agree it would have been better for NZers to get everything they wanted.

[RTM]

The selling of our assets is a disgrace from start to finish. Lets hope if we must do it again....that the lessons are well learnt. Its going to be a lot harder to get Mum and Dad investor interested again, that's for sure. Its a real pity...for the most part I support National and what they are doing. But the asset sales....no way.

[Crisis]

BMRE a new one on me Crisis. Google came up with this:

Balancing, Modernization, Rehabilitation and Expansion (?)

SNOOPY
Yep, normally applicable to long term assets.

[Crisis]

.."........But the asset sales....no way.
Many don't like this view but govt is about governance, not doing business especially where private sector is capable of supplying the required services. This is a much better privatisation than selling to a foreign private ownership. At least some micro level investors received some shares. However mum and dad investors should receive more advantage than MRP offered. I believe govt will consider this in future offerings.

[CJ]

Many don't like this view but govt is about governance, not doing business especially where private sector is capable of supplying the required services. Agree. Its a shame the NZ Superfund and some Kiwisaver funds, didn't take a large % rather than Australian speculators.

[POSSUM THE CAT]

CJ why should the NZ Superfund & Kiwisaver Funds by a dog just because it is a NZ Govt float.

[CJ]

CJ why should the NZ Superfund & Kiwisaver Funds by a dog just because it is a NZ Govt float.Fair point. I was presupposing the fact that since apparently 80% of the NZ population didn't want it sold, and that they are/were the ultimate investor via the Government, that it was not a Dog.

[Snoopy]

From a sharechat article on 17th July:


A further quote from the same article

"Forsyth Barr analyst Andrew Harvey-Green put a 12-month price target of $2.35 and a rating of 'hold' in a report dated June 19. His discounted cash flow valuation was $2.18, including a discount of 20 cents for the Labour/Greens policy for a single buying agency. It also assumed wholesale electricity price growth of 2 percent a year and electricity demand growth of 0.7 percent."

" "Whilst we like the underlying industry characteristics (robust earnings & solid growth), there are regulatory (single buyer model and transmission pricing) and demand issues (threat of aluminium smelter closure and generally weak demand) facing the industry," he said in the report."

Fobar says long term demand issues, but still forecasting price growth of 2% and demand growth of 0.7%? That doesn't make sense does it?

SNOOPY

[Snoopy]

CJ why should the NZ Superfund & Kiwisaver Funds by a dog just because it is a NZ Govt float.


The only reason you think MRP is a dog is because it is trading below issue price. If it had been floated at $2.20, everyone would be cheering as to what a great investment it was. The only reason it wasn' t floated at $2.20 is that Key chose to offer shares to his Australian speculator mates. Tie a bit of steak to your dogs tail and he will end up chasing it. MRP is an example of self engineered dogishness.

SNOOPY

[bulltrap]

Many don't like this view but govt is about governance, not doing business especially where private sector is capable of supplying the required services.

I'm still struggling to join the dots between 'private sector' and 'power generation'.

So someone turns up and says they want to spend $5B over the next 10 years building a new hydro station. But it'll have to be on crown land, and there's going to have to be some forced land acquisition and resettlement, there's major impact on water supply downstream, etc, etc.

It might be in service 100 years, unless it becomes unprofitable before then, or the plant sustains serious damage in an earthquake, at which point it'll presumably be abandoned by its owners (the less said about this the better).

But guess what, it'd never happen like that.

[POSSUM THE CAT]

Snoopy you still not provided a reason for KiwiSaver or NZ Superfund to buy shares in MRP. They do not seem to agree with your analysis.

[Snoopy]

Snoopy you still not provided a reason for KiwiSaver or NZ Superfund to buy shares in MRP. They do not seem to agree with your analysis.

Possum, I expect that many Kiwisaver funds and the NZ Super fund already own MRP shares. What you should keep in mind is what happened at float time. Institutions put in a bid stating how much they wanted to pay for their own predetermined number of shares. Clearly there were several Australian institutions that put in higher bids for a large number of MRP shares. The result was that NZ institutions picked up less shares than they otherwise would have. That doesn't mean that NZ institutions thought MRP was a dog. It just meant they were not prepared to pay what the Australian institutions did.

As for why you should own MRP at all, that is easy. MRP has, from a physics perspective, has the lowest cost generation plant which is situated nearest to the largest (Auckland) market. Hydro and geothermal energy is a great mix. Furthermore it is a good geographic hedge for Contact Energy shareholders like me.

SNOOPY

discl: hold CEN, MRP

[POSSUM THE CAT]

Snoopy Iwas replying to the suggestion that they should buy more MRP. I think this would be a stupid idea & buying Meridian shares might be an even worse Idea. I hold TPW CEN ORG & MRP shares. but reduced my purchase of MRP to the minimum because of the final details & lack of solid answers from Govt. MRP would have to get down to $2.00 on the NZX or $1.70 on the ASX for me to increase my holding.

[Snoopy]

Have just run a legislated reduction in the amount charged for power by 10%, against the pro-forma forecast FY2014 income statement (p111 of the MRP prospectus).

I have reduced total revenue from $1,385m to $1,247m. Because the asset values have been reduced by 10%, it should follow that the ongoing depreciation is 10% lower as well. So the 'Depreciation and Amortization' charge reduces from $169.4m to $152.5m. Hold all other costs constant and by my calculation the NPAT reduces from $160.4m to a mere $39m! In share price terms if the market valued MRP at $2.40, it would only be worth 60c after a Labour/Greens Energy minister applied their deemed return on asset rules. That would be a pretty big haircut to take on what on paper is a 'conservative' investment!


OK I have been a bit sloppy with my proportionality. If I assume all figures as above, the net profit after tax forecast for FY2014 comes out as $84.5m or 6cps. That is a little better than the $39m I 'calculated' previously. If you regard a share price of $2.40 as market appropriate for today's earnings, then the MRP share price should drop to $1.26 under a Labour/Green iron hand.

I have seen other reports that suggest that a 10% gross price cut is a heavy handed way to interpret the Labour/Green energy policy. So let's do a bit of sensitivity analysis based around a 5% gross price cut, thanks to that centralized state energy buyer, all based on the prospective consolidated income statement figures in the prospectus.

Total revenue = $1,316m. => EBITDAF = $428.5m.

Reduce depreciation and amortization by 5% (because of a reduction in the underlying asset values) => D&A= $160.9m

So EBIT comes out at $289.2m, and profit before tax is $196.9m. Take off tax at the 'going rate' of 38% (anyone know why MRP is paying such a high nominal rate?) and I get NPAT of $122.1m. That equates to 8.7cps and an MRP share price of $1.83.

So a share price settling between $1.26 and $1.83 still doesn't sound too palatable, even if it does sit a little better than my original low ball estimate of 61c!

SNOOPY

[Snoopy]

but reduced my purchase of MRP to the minimum because of the final details & lack of solid answers from Govt. MRP would have to get down to $2.00 on the NZX or $1.70 on the ASX for me to increase my holding.


I am curious to know Possum, what were the final details and lack of solid answers that put you off? Just asking because I thought the prospectus contained most answers. I am also interested in light of my revised risk analysis, whether you now consider even $NZ2 too dear for MRP?

SNOOPY

[POSSUM THE CAT]

SNOOPY Your figures & calculations suggest that NZ Super Fund & Kiwi Saver funds should sell out of MRP as quickly as practical, rather than buying more as you suggested earlier.

[Tyro]

At last ... back in the money. Let the uptrend continue ... :)

I've been in the money from day one. That's how its done.

[POSSUM THE CAT]

Snoopy Will do further analysis if & when the share price gets into my interest range. Apparently your interpretation of some of the prospectus facts & figures is different to mine. The same as I would say you would disagree with my interpretation of Z Energy. Due to my experience in the Motor Trade. I would not touch it.

[fish]

Snoopy Will do further analysis if & when the share price gets into my interest range. Apparently your interpretation of some of the prospectus facts & figures is different to mine. The same as I would say you would disagree with my interpretation of Z Energy. Due to my experience in the Motor Trade. I would not touch it.
Must agree With you here but am appreciative of snoopys research .
I put further discounts on mrp because 2/3 of their generation relies on hydro from 1 catchment. This catchment is easily affected by climate change and the cost of hedging against it will be rising .North Island hydro storage is well below normal and south island well above normal.
A dry winter could put great pressure on earnings.

[Snoopy]

Am appreciative of snoopys research .
I put further discounts on mrp because 2/3 of their generation relies on hydro from 1 catchment. This catchment is easily affected by climate change and the cost of hedging against it will be rising .North Island hydro storage is well below normal and south island well above normal.
A dry winter could put great pressure on earnings.


I have my own hedge on MRP - holding Contact Energy shares! What I will lose if MRP has a poor hydro year, I should gain as Contact Energy maxes generation at Otahuhu B the gas plant just south of Auckland to make up for the lost MRP hydro power. So I don't need to discount MRP for poor hydro if I view my energy shares more on a portfolio basis.

SNOOPY

[Snoopy]

SNOOPY Your figures & calculations suggest that NZ Super Fund & Kiwi Saver funds should sell out of MRP as quickly as practical, rather than buying more as you suggested earlier.


Of course my figures for MRP assume that a Labour/Greens government is a certainty and that they will be able to implement their power plan according to their bluster. This eventuality is far from a certainty IMO.

SNOOPY

[POSSUM THE CAT]

Snoopy make up your mind you cannot have an each way bet. Does the NZ super fund & the kiwi saver funds Buy OR Sell?

[Snoopy]

Snoopy make up your mind you cannot have an each way bet. Does the NZ super fund & the kiwi saver funds Buy OR Sell?


MRP is not an each way bet Possum. It depends on your circumstances. As a one way bet on the power industry I would say 'don't buy', because I believe that CEN is equally well managed and has less downside risk. If however, you already own CEN, then I believe it makes sense to own some MRP for the geographic diversification it gives to your energy 'portfolio'. In that instance I don't believe that $2.40 for MRP is too expensive, although it certainly isn't cheap either. However the extra downside risk that I believe exists with MRP relative to CEN must be acknowledged.

In summary I would look at holding both CEN and MRP but in a ratio of 2:1 by value.

SNOOPY

[brevos]

I would've thought today's announcement regarding Meridian & the Tiwai Pt smelter would've reduced some of the uncertainty around NZ's electricity market and been net positive for MRP (and their share price)....instead, MRP and CEN are down (while TPW is up slightly).

Anyone have any insights?

[robbo24]

Anyone have any insights?

My guess is just people throwing in the towel + fear of the Greens.

[Snoopy]

I would've thought today's announcement regarding Meridian & the Tiwai Pt smelter would've reduced some of the uncertainty around NZ's electricity market and been net positive for MRP (and their share price)....instead, MRP and CEN are down (while TPW is up slightly).

Anyone have any insights?

The Meridian float was looking doubtful. Now it is certain. So people will be lightening their exposure to other power industry players so they can participate in the heavily discounted Meridian issue.

SNOOPY

[lascar]

My guess is just people throwing in the towel + fear of the Greens.


:D nice one.

[POSSUM THE CAT]

Snoopy How heavily discounted will the Meridian float be. Are they possibly pay you to take the shares or will try & get 10cents each for them. What a stupid decision not to can it until a more favorable time. Sign of government desperation.

[minimoke]

I would've thought today's announcement regarding Meridian & the Tiwai Pt smelter would've reduced some of the uncertainty around NZ's electricity market
It still doesn't. It provides certainty to October 2015 which is the earliest date nzas can give its 15 month notice of quitting in January 2017

October is a nice date as it is after the results of the next election

[robbo24]

It still doesn't. It provides certainty to October 2015 which is the earliest date nzas can give its 15 month notice of quitting in January 2017

For now the news isn't all bad: Tiwai Point aluminium smelter's majority owner Rio Tinto has ditched plans to sell off the plant, after posting a US$1.7 billion (NZ$2.12b) profit within hours of picking up a NZ$30 million dollar subsidy from New Zealand taxpayers.

http://www.stuff.co.nz/business/industries/9020341/Rio-ditches-plans-to-sell-smelter

[minimoke]

For now the news isn't all bad:
Huh?? MRP hitting $2.25 bottom today to recover to $2.26 but still a 1.7 percent hit.

[Master98]

For this stock, all big players come into market after 12pm every day which is aus. market open time, so majority sellers/buyers are australians i guess.

[modandm]

For this stock, all big players come into market after 12pm every day which is aus. market open time, so majority sellers/buyers are australians i guess.

exactly. Its a risk-off stock. We are seeing better data out of china etc, people are buying the miners again, hence risk is on.

[fish]

Lack of rainfall in taupo catchment continues-this is a high risk generator and retailer.

[Wolf]

What does everyone think the outlook for MRP is?

[noodles]

I think the share price will be driven by the meridian float. The govt may well have to make shares cheap to entice Joe public. This would put downward pressure on mrp.

[brevos]

MRP announce their FY13 results next Wed 28th....I suspect these are likely to very closely resemble the forecasts in the prospectus, but there may be some future looking statements which impact the share price? Thoughts?

[minimoke]

I think the share price will be driven by the meridian float. The govt may well have to make shares cheap to entice Joe public. This would put downward pressure on mrp.
Looks like closing the week down to a new low of $2.18

[RTM]

Well, MRP report tomorrow. Not sure if its before or after the close. John Key is going to need a good result if the Meridian float is to be successful.
How much rain in the Taupo region recently ?

[Timid]

Well, you can see for yourself. It's updated weekly on the MRP website.

.... it's been a dry winter.

http://www.mightyriver.co.nz/Our-Business/Generation/Lake-Levels.aspx

[winner69]

Ann result out. All too complicated for me to say if good or bad

Maybe fish/snoopy who understand these sort of companies can enlighten me

My impression just as well they have a PFI thingie as a reference ...if it beat that that's great news ....although I note they deferred expenditure to achieve that

Never mind prob all smoke and mirrors so I don't believe a word of it ..... But if fish says its god I'll believe him

[winner69]

If it is so good exceeding the PFI maybe the shareprice wil go back abov th issue price

[RTM]

To display my ignorance...what the hell if PFI ?

[iceman]

To display my ignorance...what the hell if PFI ?

Profit Forecast Indication I think ?

[winner69]

To display my ignorance...what the hell if PFI ?

The forecasts in the prospectus

God knows what it actually stands for

[winner69]

The forecasts in the prospectus

God knows what it actually stands for

Thanks iceman

[bull....]

nice div at this price

[RTM]

Thanks.
@ $2.50 ? Yeah...I guess its OK.
Good to see that the drought does not seem to have crucified them. I was always for fine dry weather....now with some MRP, TPW and SML, plus having moved to an area where water comes from my roof... rain is not seeming to be such a bad thing !

[RTM]

"Mrs Withers said the Board had forecast in the PFI an 8.3% increase in full year dividends from 12cps to 13cps for FY2014, representing 71% of Free Cash Flow5. In maintaining an overview of capital management, the Board would take into account the lower debt at year end as a result of the operating out-performance and lower capital expenditure relative to PFI, as well as the lower capital expenditure now planned for FY2014, she said"

Is Mrs Withers here indicating that the 2014 dividend might be higher ? Bless her if this is the case !

[iceman]

"Mrs Withers said the Board had forecast in the PFI an 8.3% increase in full year dividends from 12cps to 13cps for FY2014, representing 71% of Free Cash Flow5. In maintaining an overview of capital management, the Board would take into account the lower debt at year end as a result of the operating out-performance and lower capital expenditure relative to PFI, as well as the lower capital expenditure now planned for FY2014, she said"

Is Mrs Withers here indicating that the 2014 dividend might be higher ? Bless her if this is the case !

That's the way I read this too RTM and hopefully that will be the case. One just has to take all this with a grain of salt as there will be enormous political pressure on MRP to appease shareholders one way or another.

[CJ]

To display my ignorance...what the hell if PFI ?


Profit Forecast Indication I think ?


The forecasts in the prospectus

God knows what it actually stands forProspective Financial Information. Its an accounting standard thing (ie. the standard that must be complied with in the prospectus)

http://www.ifac.org/sites/default/files/meetings/files/0308.pdf

[RTM]

Thanks CJ. Gawd, bet that's interesting reading !

[iceman]

Prospective Financial Information. Its an accounting standard thing (ie. the standard that must be complied with in the prospectus)

http://www.ifac.org/sites/default/files/meetings/files/0308.pdf

Thanks for clarifying that CJ

[Fred114]

That's the way I read this too RTM and hopefully that will be the case. One just has to take all this with a grain of salt as there will be enormous political pressure on MRP to appease shareholders one way or another.

Whithers by name whithers by .......no wait, that's not it....Whithers by name deliver by nature.......that's better......

[robbo24]

Divvies paid on Monday, yeah boiiii...

[Snoopy]

Power stations owned and operated by MRP, with estimate of cost of new turbines and related equipment are as follows:

Hydro:

Aratiatia 78MW (comm. 1964) $100m (+ $150m dam)
Ohakuri 106MW (comm1961) $120m (+ $150m dam)
Atiamuri 74MW (comm. 1958) $100m (+ $150m dam)
Whakamaru 100MW (comm.1956) $120m (+ $150m dam)
Muraetai I & II 352MW (comm. 1952, 1970) $450m (+$450m dam)
Waipapa 54MW (comm. 1961) $100m (+ $150m dam)
Arapuni 184MW (comm.1929, 1938, 1946) $250m (+$300m dam)
Karapiro 96MW (comm. 1947) $120m (+$150m dam)

Gas:

Southdown 175MW (comm. 1996) $350m

Geothermal:

Ngatamariki 82MW (comm. 2013) $300m
Nga Awa Purua 138MW (comm. 2010) $550m
Rotokawa 34MW (comm. 1997) $150m
Kawerau 100MW (comm. 2008) $400m

Total Turbine & Ancillary Cost for MRP: $3,110m

Total Dam Valuation for MRP: $1,650m.

Please note here that I am not suggesting that all of these dams can be rebuilt for $1,650m. But IMO an historic dam must have some value assigned to it to allow for representative repairs to be done and accounted for at a latter date, and some kind of depreciation to be assigned. The dams have been valued by benchmarking them against the implied book values of the Contact Energy owned dams.

Adding the two figures together, I get a total power station valuation of $4,760m.

I see the book value of all assets that can be attributed to generation on the MRP balance sheet as $5,245m.

$4,760m/$5,245m = 91%

So I expect the money that MRP will receive for its power by a single regulated power authority to be legislated down in gross value terms by 10%. Of course because actual fixed costs will not decrease, I expect the actual profit for MRP would fall by rather more than 10%.



A small update now that the FY2013 MRP annual report is in my hands. Actual property plant and equipment at the end of FY2013 was $5,141m as at balance date.

$4.760m/$5,141m = 92.5%

If a Labour/Green policy is implemented based on ‘fair value of assets’, and my assessment of fair value is anywhere near correct then the gross return from those assets will be reduced by 7.5%

$1,805.6m x 0.075 = $135.4m

On a tax adjusted basis that would see the FY2013 NPAT reduced as follows:

$114.8m – 0.72($135.4m) = $17.3m - ouch, over an 80% reduction!

Could the effect on MRP of a Labour/Greens energy policy really be that severe?

One more comparative figure from both MRP and MEL. MRP has revalued their power assets up by $79.5m over FY2013. MEL has revalued their power generation assets down by $849m by over the same period (note 22: Property Plant and Equipment in the annual report). It is curious that two companies operating in the same market can ostensibly have such different treatment of similar assets.

SNOOPY

[CJ]

. MEL has revalued their power generation assets down by $849m by over the same period (note 22: Property Plant and Equipment in the annual report). It is curious that two companies operating in the same market can ostensibly have such different treatment of similar assets.DCF based on the lower price they can now charge Tiwai will reflect most of that.

[Joshuatree]

"MRP had the lowest first qtr hydro gen since the co was formed down by more than a third in the 3 months to end of sep. Electricity sales down 5% reflecting lower national demand and an 8% drop in commercial sales vol" "MRP's overall gen was down 18% because of low water flows in the waikato river .Hydro production was down 34%"

On a good note"However by the end of the qtr lake Taupo water storage was back at more than 100% of historical average" all on sharetrader morn news

MMh wonder what this summers rainfall is going to give us.

[Wolf]

How far through are mighty river power in their share buy back? Is there a way i can keep track?

[Joshuatree]

Maybe you could go the source ,the NZX and read MRP announcements.

[Banksie]

How far through are mighty river power in their share buy back? Is there a way i can keep track?

They publish one of these every day or so: https://www.nzx.com/companies/MRP/announcements/242793

So far they have bought back 2,282,773 shares.

[Wolf]

Cheers banksie Does the "average consideration per security acquired" mean average share price for that volume bought?

[Banksie]

Cheers banksie Does the "average consideration per security acquired" mean average share price for that volume bought?

Yes - for that day - so 2.1974 is the price for the 285,00 purchased on the 23/10/2013. If you look back through the other announcements you will see what the others were purchased at.

[Wolf]

16-Oct
244000
2.2011
537068.4



17-Oct
191800
2.1904
420118.7



18-Oct
450000
2.1576
970920



21-Oct
700000
2.1584
1510880



22-Oct
186973
2.1765
406946.7



23-Oct
225000
2.2078
496755



24-Oct
285000
2.1974
626259



25-Oct
415000
2.1656
898724



Total
2697773

5867672

[GR8DAY]

.....think we're seeing the beginnings of a lift in the Share Price and maybe on its way back to the $1.50 IPO price. Probably seeing profits coming out of Meridian and into MRP.......which would make lot of sense. With the current price underpinned by the Buy-Back I see MRP a fairly safe bet at these levels........in my opinion.

[gv1]

And also bank of mellon circling NZ waters...who knows.

[GR8DAY]

........DONT MISS OUT ON THIS ONE FOLKS.......$1.50 here we come?? (again)

[Wolf]

$2.50.... right guys

[clip]

I'm a bit confused as to the 1.50 and 2.50 numbers going around, where's 1.50 coming from? Didn't it list/we pay 2.50ps.. or is the 1.50 referring to meridian?

[Joshuatree]

Mellon wants to bottle the waikato . hey clip is friday night n the koru lounge anything goes have a drink talk knowledgeable numbers and make pie in the sky predictions guzzle a gin tell some big ones and have a great weekend :)

[GR8DAY]

I'm a bit confused as to the 1.50 and 2.50 numbers going around, where's 1.50 coming from? Didn't it list/we pay 2.50ps.. or is the 1.50 referring to meridian?


......no YOUR not confused at all CLIP.........I AM!!...........indeed I was meaning $2.50 here we come!!........getting my M's mixed up (MRP,MEL).......just having a senior moment in my middle age. Thank god no-one listens to me I cud have caused an almighty sell-off.

[Wolf]

I have them at being $10,977,530.01 through their buy back so fair way yet.

The announcement on the 29th of October said that:

"The Crown, which holds 51.76% of Mighty RIver Power's shares, has advised the Company that it does not wish to participate as a seller into the share buyback."
https://www.nzx.com/companies/MRP/announcements/243006

Was the crown selling shares to the MRP buy back before this date??
It say's the buyback is at 8.30am so are they off market trades? and if so from who?

[iceman]

I suggest we retire this thread which was originally set up for pre-float discussion. Post float, this thread http://www.sharetrader.co.nz/showthread.php?9357-MRP-Mighty-River-Power/page5
was set up for ongoing discussion.
Having 2 active threads risks those of us following MRP missing out on all the interesting discussions and comments !