Horror day for power company investors

An increased interim dividend of 5.7 cents per share, up 2pc, was declared, payable on March 31, although ebitdaf earnings guidance for the year was lowered and total dividend guidance remains unchanged for the full financial year at 14.3 cents. Photo / Alan Gibson

More than half a billion dollars were wiped off the value of NZX-listed electricity firms yesterday making it a horror day for power company investors.

Analysts said it was difficult to attribute the sell-off to a single cause.

Posturing by opposition politicians and privately-owned Todd Corporation's plans for a new gas-powered electricity plant, which could affect wholesale power prices, could be causing some uncertainty in the market.

Meanwhile, the owners of the Tiwai Point aluminium smelter, Rio Tinto and Japan's Sumitomo, will next week give Meridian Energy an answer on whether or not wish to terminate their contract.

If they don't, the smelter - which accounts for around 13 per cent of the country's power demand - could close in 18 months' time, leaving the sector with excess power generation.

Meridian shares closed down 4.7 per cent at $2.05 last night, while Mighty River Power shares finished the day down 3.8 per cent at $2.55, only 5c above its $2.50 IPO price.

Contact Energy shares closed down 3.7 per cent $4.95 and Genesis Energy shares closed down 4.1 per cent at $1.755.

The rout wiped $608 million off the the four companies' combined market capitalisation.
The NZX 50 closed down 0.73 per cent at 5,733.290.

Grant Williamson, of sharebrokers Hamilton Hindin Greene, said comments by Labour's energy spokesman Stuart Nash regarding opposition electricity policy might be spooking some investors.

Nash told TVNZ's Q&A programme on Sunday that he was conducting an in-depth review on power policy, which would lead to a set of recommendations.

"But we start with the fundamental premise that consumers are paying too much for their power, and then we work down from that and say, 'Okay, what is the best policy to address the fundamental issue we've got?'"

Opposition policies aimed at reducing power prices put pressure on electricity stocks in the lead-up to last year's general election. The same stocks rallied sharply following National's win at the polls.

"Investors are being cautious with that [electricity] sector," said Williamson.
He said growth expectations for the sector were muted.

"You sort of feel that's probably going to keep downward pressure on wholesale prices," Williamson said. "Obviously investors are starting to think companies can't maintain their dividends going forward."

Todd Corporation subsidiary Nova Energy is calling for expressions of interest to build, own and operate a 100 megawatt gas-fired power plant.

Craigs Investment Partners head of research Grant Swanepoel said the new plant, if it goes ahead, could impact wholesale prices "at the margins".

"It's not something that's going to keep me in cold sweats at night," he said.

However, Swanepoel said the share prices across the sector presently reflected a dim view on the outlook for wholesale electricity prices.

"You've got a lot of big events occurring in the near-term so the market's going to be a bit jumpy," he said.

MARKET CAP DECLINES

Meridian Energy -$256.3m

Contact Energy -$139.3m

Mighty River Power -$137.7m

Genesis Energy $75m

Total -$608.3m