Easy asset buy poses hazards

By Susan Edmunds

Photo / Janna Dixon
Photo / Janna Dixon

National's sell-down of state-owned assets, tipped to begin next year, will provide excellent opportunities for inexperienced investors to get into the sharemarket, analysts say.

But it was important that newbie investors assess each asset on its individual merits and did not assume they would be a low-risk option.

The companies set to be partially sold were Meridian, Genesis, Mighty River Power and Solid Energy. Some Government shares in Air New Zealand would also be sold.

The scheme was expected to raise between $5 billion and $7 billion over three to five years, which would be reinvested into schools, hospitals and irrigation schemes, said a spokesman for Finance Minister Bill English.

Financial adviser Martin Hawes said people new to the market should think of the opportunities to buy shares in the companies as if they were buying the whole business.

"All we're talking about is whether we should buy a small slice of these businesses.

If you had the money, would you buy the whole thing?"

New Zealanders generally had a good grasp of business, although they were generally not sharemarket savvy. People needed to realise how their business methods would translate to buying shares, Hawes said. "If you were buying the local contracting or drycleaning business, you'd want to know everything you can."

Investors should take that same approach with state-owned assets. "Look carefully at the price and see if there is a strong initial return, and good income in terms of dividend and company profitability."

Guy Elliffe, AMP's head of equities, said electricity companies such as Meridian and Mighty River Power, expected to be the first off the asset-sales block, had a fixed number of competitors and good track records. "They relatively predictably return relatively high dividends."

He said investors would need to weigh up the risks to the dividends, how much growth was possible and what sort of gross dividend yield was available compared with other investment vehicles. Genesis Energy would be more complicated, and Air NZ was a different type of investment with a lot more risk relative to return, he said.

Hawes said the scheme was an excellent opportunity for investors. "But that depends on one vital piece of information we don't have: the price." The Government would be under pressure not to pitch prices too low and undervalue the assets, and that might mean they were priced too high.

"Investors also need to judge this company by company. I would not [recommend] people take a blanket approach."

Elliffe said the key would be that the listing prices were competitive relative to other energy companies such as Contact and TrustPower. There should be a bit of a discount to entice investors to support a new listing, but that would be offset by the expectation that boards would be able to put up prices and increase the value of the SOEs faster than some entities.

He said no one made huge gains by investing in Air NZ when shares were first sold and they were now trading miles below their initial list price.

Hawes expected the media to be full of analysis and comment as shares in each entity were made available, and that could help new investors. But he warned that people needed to be wary of anyone with a vested interest. Some of the businesses would have gone through a period of "window dressing" because it was clear that the plan was to sell them.

"It's clearly a lot less risky than a lot of other investments but people need to understand a bit about financial analysis ... It's not something for investors to [think] there's no risk."

He said some of the companies could encounter conflict. "The risk of the mixed-ownership model is that it embraces the worst parts of the private-sector model and the public-sector model."

Investors would need to look at the company's board. "You wouldn't be keen on a company having a lot of non-economic objectives ... you want them to maximise revenues, not reduce power prices."

Most KiwiSaver funds would invest in the state-owned assets, so most people with KiwiSaver accounts with New Zealand equity would have some exposure.

Elliffe said as well as giving investors an opportunity, the partial sale of state-owned assets was a benefit for the companies because they would pick up disciplines from the public market, such as pricing and accountability.

Hawes said it was time to put aside politics. "People should ignore which way they voted and consider buying on investment merits."

- Herald on Sunday

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