Charging into power share buying
The flood of people frenziedly signing up for the Mighty River Power share float resembled the rushing torrents the state-owned power company relies on in rainy seasons to generate its power.
It’s understandable. Given nearly everyone gets electricity bills, there is something attractive about being able to buy shares in a company selling power.
It feels like pre-paying part of the power bill with the Mighty River Power (MRP) dividend stream offsetting the power bills.
But as fund manager Carmel Fisher says, there is something a little bonkers about the rush to register which temporarily crashed the mightyrivershares.govt. nz website.
People have until March 22 to register, with those who do before the cut-off guaranteed to get 25 per cent more shares than those who register after.
The rush indicates many people have decided they will invest.
There is a gut-belief out there that the price of MRP shares will be set high enough so that the Government does not look like it is selling the family silver off too cheaply, but setting the price low enough so shares have scope to rise in value.
But should you register? The answer is yes. Registering does not mean you must subscribe for MRP shares, but it will keep your options open to get the best deal.
If you have a big mort- gage, buying MRP means you are borrowing to invest.
Similarly, young folk tempted by the idea of doubling their house deposit by buying MRP shares and selling out after a hoped for ‘‘stag’’ run, need to think about the risk.
For those with cash to invest, MRP will pay dividends which should be sustained at a higher level for the foreseeable future than the interest on bank deposits. That’s as it should be. Shares are riskier than bank deposits, and MRP sees an awful lot of cash pouring in.
But a word of caution. MRP is a company run by directors who are fallible.
The mess at Solid Energy, another state-owned asset, is a lesson in company and director fallibility. Another lesson can be found in the foreign venture losses Mighty River Power made, and then tried to play down.
Then there is regulatory risk.
MRP’s cost of producing power dropped from $344 million in the six months to the end of December 2011 to $289m for the six months to the end of December 2012, but the prices it charges consumers rose. Against that backdrop, you could imagine a regulator becoming interested in super-profits, though the costs of its foreign stuff-ups cut its pro- fit to only modest levels.
I am not trying to pour cold water on people’s enthusiasm. I am just trying to pose questions would-be investors should ponder.