The increased activity comes on the back of the Government being forced to provide a supplementary disclosure on the MRP offer document because of last week's announcement by the Labour and Green parties on setting up a single buyer of electricity, NZ Power, should they be elected next year.
Brokers spoken to said there was much uncertainty in the marketplace. The threat of closure of the Tiwai Point aluminium smelter was mostly ignored by MRP investors. However, the single-buyer plan was in the forefront of investors'' minds. Many were questioning the timing of it, and what the end plan was for the Opposition parties.
Morningstar senior analyst Nachiket Moghe said the new regulatory environment would most likely reduce returns for all power companies and possibly reduce Mighty River's income by $100 million.
''We believe the Opposition proposal is fairly extreme but it would significantly reduce our fair value estimate if implemented.''
Barring major regulatory changes, returns were likely to exceed the cost of capital over the longer term, supporting Morningstar's ''narrow moat'', or competitive advantage, rating, he said.
But the medium-term outlook for the electricity sector was not promising because of excess supply and sluggish demand, which would temper operating income growth for the next few years. Cash flows and dividends should rise strongly as capital investment wanes.
Morningstar had a fair value of $2.70 a share on MRP, towards the top of the $2.35 to $2.80 indicative price range, Mr Moghe said. That suggested a dividend yield of 4.8%, tax paid, for New Zealand shareholders.
''The Government could set a price above or below the indicative price range. We believe this creates some pricing uncertainty for individuals participating in the offer.''
Mr Moghe's recommendation to subscribe to the issue was contingent on the issue price being kept within the $2.35 to $2.80 range. An issue price within the offer range would allow fair, or better, returns. In the context of a fully priced New Zealand market, that appeared ''reasonable value''.
''Recent regulatory proposals, if implemented, would significantly reduce returns and investors need to take this into consideration when deciding whether to subscribe.''
MRP's profitability and valuation could be substantially affected under the Labour-Green regime, Mr Moghe said.
