Money Editor for NZ Herald

Meridian bonanza tipped

Analysts forecast share float investors could reap net dividends well above bank rates.

Meridian is due to list on the sharemarket in early November. Photo / Simon Baker
Meridian is due to list on the sharemarket in early November. Photo / Simon Baker

Investors in soon-to-be-floated Meridian Energy could receive a net dividend yield of up to 6.8 per cent, based on analyst valuations.

Deutsche Bank/Craigs Investment Partners and Goldman Sachs have released analysis ahead of a marketing drive by their investment banking arms.

The two brokers as well as Macquarie are joint lead managers for selling up to 49 per cent of the state-owned energy company.

Analysts from the firms produce reports for institutional clients before the official prospectus is made available, expected to be late this month or early next month.

Meridian is due to list on the sharemarket in early November.

Craigs Investment Partners analyst Grant Swanepoel valued Meridian at between $4.03 billion and $4.65 billion with a net yield of 6.2 and 6.5 per cent.

Based on 1.6 billion shares being issued, Swanepoel's valuation would put the price of the shares somewhere between $2.51 and $2.90.

Goldman Sachs analyst Matt Henry did not specify any valuation figures in his report but based on his enterprise multiple range of 8.4 to 10 times earnings before interest, tax, depreciation and amortisation (ebitda) minus debt would value the company between $3.806 billion and $4.683 billion.

That would put the share price range at between $2.37 and $2.92 with a net yield of between 5.55 per cent and 6.83 per cent.

If that yield was fully imputed, investors could receive a tax-paid yield of up to 9.49 per cent - around double the interest paid on cash in the bank.

However, Henry estimated only 40 to 70 per cent of the dividend would have imputation credits attached, meaning investors would have to pay tax at their personal rate on the remainder.

The Government has already announced investors will have to pay only 60 per cent up front for the shares with a further 40 per cent due 18 months after the company has listed.

Both analysts highlighted risks to the company including regulatory concerns associated with the Labour and Green Parties winning next year's election and introducing a single buyer model for the energy sector.

Swanepoel estimated the value of Meridian could fall to a range of $2.89 billion to $3.23 billion if the regulatory model was introduced and said earnings would likely be hit by 20 to 25 per cent.

He took the risk into account in his valuation but said even if the model was introduced the start date for its implementation was unlikely to be before 2018.

Henry estimated Meridian 2014 earnings (before interest tax, depreciation, amortisation and fair value adjustments) could be hit by between 29 per cent and 41 per cent by the change.

But he also poured doubt on its likely introduction.

Macquarie and Forsyth Barr are also expected to release reports in the next few weeks.

- NZ Herald

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