Tamsyn Parker 's Opinion

Tamsyn Parker is the NZ Herald Assistant Business Editor

Stock Takes: Meridian's sliding share price

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Meridian's share price has been trending down, indicating the rush to buy has dried up. Photo / Simon Baker
Meridian's share price has been trending down, indicating the rush to buy has dried up. Photo / Simon Baker

Meridian Energy's sliding share price must be making some investors and the Government feel a little nervous.

Shares in the power company hit $1.11 on November 6 but have trended downwards since then.

On Wednesday they touched a low point of $1.01 - just 1c above the first instalment issue price.

There may be a touch of groundhog day feeling coming through.

Mighty River Power dropped below its $2.50 issue price just 10 days after listing on the stock exchange on May 10.

James Smalley, director at broker Hamilton Hindin Greene, said Meridian's fall indicated the initial rush to buy shares by investors who did not get enough through the initial public offer had now dried up.

"It just shows you a lot of buying was done by institutions short of stock in the float. That initial buying wave has now been satisfied."

Smalley said Meridian was also being weighed down by regulatory issues and concerns about the Labour/Greens power industry shake-up proposal.

But he said the company still remained attractive on its dividend yield. As a defensive investment in a low growth market Meridian's shares were never expected to shoot the lights out but investors will be hoping they don't drop below what they paid for them. Meridian shares closed down 0.5c yesterday at $1.04.

FLYING HIGH

Speculation that the Government will sell down its stake in Air New Zealand has been flying around the market but as yet no one has been appointed to do the deal, suggesting it is at least a few days away.

One market source predicted the investment bankers would be "cutting each other's throats" to do the deal as if it goes ahead it will likely be the last big bit of stock sold before the end of the year.

The hot competition could mean there is no brokerage paid - resulting in a good deal for the Government and the taxpayer. Brokers instead would look to benefit from investors selling down other stock to buy into the Air New Zealand sale.

Analysts are picking the stock will be priced close to its current trading price and could be issued at $1.60. Air New Zealand yesterday announced it would invest more money into Virgin Australia as part of a rights issue by the company. Air New Zealand's stake could increase from its current holding of 22.9 per cent to 25.5 per cent.

One fund manager said he did not see the Virgin investment as a turn-off to potential Air NZ investors.

"There's no change in strategy there. Australia is a really important market." Air New Zealand shares closed unchanged yesterday at $1.67.

THUMBS UP

Analysts have given the thumbs up to Kiwi Income Property Trust's plans to internalise its management contract. The property trust, which owns Auckland's Sylvia Park shopping centre, announced plans to buy out the Commonwealth Bank of Australia for $70.6 million this week on the proviso that it gets shareholder approval at a special meeting set for December 12.

Broker Craigs Investment Partners raised its recommendation on the stock to a buy on the news.

"We view this as strongly positive for unitholders in that it is highly earnings and value accretive and increases the alignment of interests between unitholders and management," analyst Chris Byrne said in a note, upgrading the stock from "hold".

He has a 12-month price target of $1.21.

The deal is expected to be tax deductible for Kiwi Income, reducing the effective payment to about $50 million.

Byrne said the tax break could result in the trust paying no tax in the second half of 2014 and full-year 2015, based on an estimated annual tax bill of $10 million to $15 million.

Meanwhile, Morningstar analyst Tony Sherlock said the change should deliver a recurring income boost.

"Management advised if the internalisation proposal is approved, the trust will achieve pretax ongoing benefits of $8 million per annum, equivalent to 0.81c per unit, around 10 per cent accretive to pretax earnings." Sherlock has a hold recommendation on the stock.

Kiwi Income's performance has been almost flat in the past year against a rising market. Units in the trust closed up 1c yesterday at $1.135.

NEW FUNDS

Tower's former investment team hope to launch two new funds in the coming weeks. Richard Stubbs, Stephen Bennie, Jamie Young and Gordon Sims set up Castle Point after being made redundant from Tower Investments following its takeover by Fisher Funds in April.

The crew plan to launch its first fund called Castle Point Ranger in the coming weeks and a second transtasman fund after that.

Stubbs said the transtasman fund was designed to tap into the burgeoning pool of KiwiSaver money. He estimates around $400 million of the $16 billion in funds under management is invested in domestic equities and says there is room for another fund manager to invest that money.

"If you go back to the late 80s there was 20-odd managers to choose from. Now there are barely 10 and a large number are at the billion-dollar mark."

The company has two financial backers. NZAM has taken a 35 per cent stake in the business while RAW Capital Partners, a Guernsey-based asset manager whose principals include Richard Avery Wright and Dennis Stoller, is providing capital backing. Avery Wright is also a founder and director of Pie Funds - a small Auckland-based fund manager set up in 2007.

MURPHY'S LAW

Expectations that the benchmark NZX 50 index could soar through 5000 points this week seem to have jinxed the market.

Last Friday the index hit 4951.36 points but this week it has steadily fallen backwards.

Yesterday it closed up 8.5 points at 4927.18.

- NZ Herald

Tamsyn Parker

Tamsyn Parker is the NZ Herald Assistant Business Editor

Tamsyn Parker is the NZ Herald Assistant Business Editor. A business journalist for ten years, she has worked in the UK and NZ for the New Zealand Herald, the National Business Review and a specialist publication on investment products for financial advisors. She writes the Stock Takes column on investing in NZ and is passionate about helping readers learn more about money and investment.

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