Stock Takes: Genesis float timetable tight

UBS has valued Genesis - which runs Huntly Power Station - at between $1.559 billion and $1.886 billion.

The Government has given itself a tight timetable for the Genesis Energy float. On Wednesday Finance Minister Bill English confirmed Genesis would list in mid-April with the offer opening in the second half of March. It's likely the Government will want it all done and dusted before April 18 - Easter Friday when many Kiwis will be thinking of their holidays rather than where to invest their money.

The last two energy company floats have given retail investors three weeks to cough up their cash, which would mean the official prospectus would need to be out about March 24.

That will give the Financial Markets Authority time to check over the document and for the book-build process to be held with brokers and institutions.

The auction-style book-build will set the price for retail investors and help the Government decide exactly how much it is prepared to sell at what price.

Shorter document

Retail investors can expect a much shorter investment statement this time round but it will still be a relatively hefty tome.

One market source said he understood it would be 70 pages long. That is much shorter than the 256-page document produced for Mighty River Power and the 224-page epic for Meridian Energy.

It's a step in the right direction but Stock Takes is not sure it would pass muster for the concise information requirement which is a new step for disclosure documents due to come into force by the end of the year under the Financial Markets Conduct Act.

Shortfall

An analyst report released this week by UBS has put the full equity value of Genesis in a range of $1.559 billion to $1.886 billion.

If the Government sold 49 per cent it would potentially get somewhere between $764 million and $924 million at that valuation. A 30 per cent sell-down would garner between $468 million and $566 million.

Based on the UBS valuation a 30 per cent sell-down would fall short of what Treasury estimates the Government could garner for the partial sales of its state-owned assets.

Initial predictions were that it would raise between $5 billion and $7 billion from the sales. That was scaled back late last year by the Treasury to a range of $4.6 billion to $5 billion.

So far it has raised $3.934 billion from the sell-downs of Mighty River Power, Meridian Energy and Air New Zealand.

English told reporters on Wednesday he would not consider the asset sales programme to be a failure even if only 30 per cent of Genesis was sold. But it's hard to make that stack up on the financials.

The Government can choose to sell anywhere between 30 and 49 per cent of Genesis but it will need to be closer to 49 per cent to come anywhere near the revised fundraising target.

English also confirmed that if only 30 per cent was sold the Government would hold onto the other 19 per cent rather than selling it at a later date.

Attractive dividend

The UBS report implies the Genesis dividend could be a juicy one.

On payout forecasts for its 2015 year the dividend yield would be somewhere between 8.5 per cent and 10.3 per cent depending on how much the shares are sold for.

At the mid-point the dividend yield would be about 9.4 per cent.

That looks pretty attractive compared with the other power companies.

Meridian has the most attractive yield so far at about 10.5 per cent for 2014 but once the second instalment payment is taken into account it sinks to the mid-sevens.

One analyst predicted Contact's 2015 dividend yield would be about 5.8 per cent cash while Mighty River Power is expected to be in the region of 4.8 per cent cash.

A second report by First NZ Capital is due out in the next day or so while the NZX has said it will publish some independent research on its website in coming weeks.

Hallenstein a buy

Hallenstein Glasson Holdings, the worst performer on New Zealand's benchmark NZX 50 Index this year, has been upgraded to "buy" from "hold" by brokerage Craigs Investment Partners.

The brokerage said weakness in the stock had been overplayed.

Shares in Hallenstein had dropped 20.8 per cent to $3.05 at market close on Wednesday, lagging a 4.3 per cent gain in the index. Yesterday they closed up 8c at $3.10.

In a note published on Tuesday, Craigs raised its 12-month target price on the stock to $3.84 from $3.51.

Hallenstein, which operates the Hallensteins, Glassons and Storm clothing stores in New Zealand and Australia, has cut its earnings guidance three times since June last year, contributing to a stock price decline of more than 40 per cent.

While the downgrades were not a good trend, the company's sales had historically outperformed general clothing and footwear sales and lagged the market only in December, when sales declined 10 per cent from the year earlier compared with market growth of 2 per cent, Craigs said.

"In our view, one month's poor performance versus the market does not justify Hallenstein's share price de-rating," Craigs analyst Chris Byrne said in the note.

"It is difficult to conclude that structural concerns are the key driver and as a result we expect earnings to recover."

- additional reporting BusinessDesk