Charg­ing into power share buy­ing

Auckland City Harbour News - - NEWS -

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.

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