Yovich & Co. Weekly Update - 08 April 2013

Apr 8, 2013 | Commentary Offers

This Week's Themes

• The NZ market edged higher and closed at its all time high last week.

• The Aussie market is being dragged down by the resource sector. Several analysts have recently downgraded commodity forecasts due to slowing demand and over supply.

• US markets cooled from recent highs with weaker employment figures keeping investors' expectations for the economic recovery in check.

• European markets took a dive after European Central Bank President Mario Draghi said that the recovery from the economic downturn in the Euro area is still subject to downside risks.

• The Kiwi pushed towards record highs on a Trade Weighted basis as the "carry trade" (borrowing at zero per cent in Yen and investing in NZ to earn a real return) between the Yen and Kiwi heated up with the Japanese Government embarking on unprecedented stimulus.

Investment News

Mighty River Power – Investment Statement Summary and Initial Thoughts:

After a year of speculation and drama, the Offer Document for Mighty River Power has finally been released, all 256 pages of it. Below are some bullet points of my thoughts and some figures:

• Indicative price range is $2.35 and $2.80 and values the company at between $3.29 Billion and $3.92 Billion.

• Prospective net debt is 1.13 Billion, giving a Debt Ratio of between 34.34% and 28.82%

• Forecasted Dividend yields are as follows:

Mighty River Power Dividend Yield

• The pricing at the upper range of $2.80 looks a bit expensive from a yield perspective but there have been valuations as high as $3.06 so may still offer value at $2.80.

• We will not know the price and number of shares you will receive until after the applications are submitted.

• In my opinion there is going to be plenty of support for MRP once listed, as international buyers and local institutions increase their shareholding to get exposure to the fourth biggest listed company on the NZX.

• International funds will be interested in getting exposure to energy companies that generate energy from 100% renewable resources.

• There is certainly downside risk if Tiwai Point Aluminium Smelter is closed. The offer document is brief when explaining this risk. I think that this is a serious risk but will be one that will play out over a few years.

Important Dates:

• The Share Offer is expected to open between 15 April and 3 May with application forms available 15 April.

• Final Price is expected to be announced on 8 May 2013 with trading on the NZX commencing on 10 May.

• We should have limited numbers of the Offer Document in hard copy after 22 April.

 

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Jarrod Goodall



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