Mighty River eyes $50m buyback

Mighty River's geothermal plants generate 40 per cent of its electricity.

Power firm tips dividend lift but earnings towards bottom of forecast

Mighty River Power has announced a possible $50 million share buy-back in the coming year.

The company also forecasts an annual dividend of 14c a share this year, up on the 13.5c paid last year and excluding the 5c special dividend announced on Wednesday.

It said its new policy was to make distributions with a payout ratio of 70 per cent to 85 per cent of free cash flow on average over time - with consideration given to working capital requirements, maintenance of a BBB+ credit rating, economic, market and hydrological risks, and estimated financial performance.

"We're pretty confident about the 14c dividend guidance - some hydrology may move up and down but we've got the balance sheet structure to ride through that variability," new chief executive Fraser Whineray told shareholders at the company's annual meeting in Auckland.

Last year Mighty River bought back shares at an average price of $2.13 a share, but its share price has recovered to above its listing price of $2.50, rising about a third this year and closing yesterday up 3c at $2.87.

"When a company buys back its own shares, it reduces the number of shares held by the public," Whineray said.

"The reduction in the number of publicly traded shares means that even if profits remain the same, the earnings per share increase."

Chairwoman Joan Withers said more than 93 per cent of foundation shareholders were still on the company's register.

"This is remarkable given the external environment over the past 18 months, and particularly the threat of politically driven regulatory intervention that hung over the industry from the time of our listing and impacted investor sentiment right through to this year's election," she said. "Our share-price movement, and particularly the sharp lift since the start of September, provides a really good lens on the market view of this receding risk."

Chief financial officer William Meek said the earnings for the current financial year were likely to be towards the bottom end of guidance given in August of between $495 million and $520 million.

"We are today confirming that guidance, with a bias to the lower end of the range due to the continuation of a long trend of drier than normal conditions in the Waikato catchment," he said.

The company had record low inflows into its Waikato catchment in the past financial year.

Whineray said the company's overseas ventures - exploratory geothermal work in Chile, a stake in a producing power station in California and geothermal rights in Germany - were under review.

Mighty River is also mothballing a turbine at its Southdown plant.

"In line with the reduced utilisation of higher-cost fossil fuel thermal plants across the industry, Southdown now plays a very small role in Mighty River Power's generation portfolio, making up less than 2 per cent of the company's total generation last year," Whineray said.

As part of an industry-wide push to get more people driving electric cars, Mighty River is replacing most of its leased vehicle fleet with plug-in or hybrid vehicles.