The election result weighs heavy on Mighty River Power
which operates the Karapiro Power Station on the Waikato
River. Photo by The New Zealand Herald.
Political risk remained a key concern for investors in
Mighty River Power, Wanaka-based Logic Fund Management
financial adviser Paul Gardner said yesterday.
While the political risk was ''very much'' in the public
domain, any election outcome was negative for MRP.
Either the much-publicised Labour-Green proposal for asingle
electricity purchaser or National's regulatory review and
likely overhaul of the sector, would force retailers to pass
on the regulated reductions in lines charges which had been
absent to date, he said.
MRP shares had fallen from the issue price of $2.50 to $1.95
and Logic Funds believed shares remained expensive and would
be fairly valued in the range of $1.85-$1.90 on current
outlook. Logic has issued a sell notice on the company.
''Our expectations for further downside in this stock have
been supported by the operational statistics for the quarter
to December 31, 2013.''
Customer sales volumes were down 9% in the quarter, which the
company claimed was due to pruning its activities in the
low-price, low-margin commercial market. However, retail
customer numbers were still reducing, Mr Gardner said.
High seasonal temperatures reduced residential sales by 5%.
''While this can be blamed on warmer weather - average
temperature over the three months was 16.7degC versus the
15-year average of 16.1degC - the recent trend over the past
two years has been warmer than average winters, resulting in
lower electricity usage.''
Market share, in terms of electricity sales measured in
gigawatt hours, had fallen from 20% to 18% from the
corresponding period in the previous year.
MRP had been pushing its customers towards fixed retail
pricing, he said.
''While we anticipate this has had little take-up, it
indicates an outlook of further wholesale price decline.''
Market rumour suggested a retail price war could emerge in
the near-term as the ''gentailers'' (generation-retailers)
slugged it out over a declining market, Mr Gardner said.
One area of potential upside in MRP's full-year 2014 results
would be operational cost cutting. With a high head count and
room for efficiency movements in the overall cost base, MRP
could counter some of the fall in revenue and market share
with operating efficiency improvements. That was not possible
before privatisation, due to the potential political issues
that would arise.
''We need to point out the MRP share buy-back has been
suspended until February 27. It is likely the company will
aggressively buy back its shares when they exit the blackout.
However, only 11 million shares are left authorised in the
programme and we suspect it will be too little, too late.''
MRP chief executive Doug Heffernan said the company was
pleased with the operating statistics and if there had been
new financial data it would have been disclosed to the
''The deadweight of the Labour-Greens policy sits across the
sector. From management's point of view, we can't get too
distracted by the share price. We've got to deliver the
MRP had committed not to raise prices to residential
customers until at least April 1 2015.