People who know I’m strongly against asset sales have taken to asking me if I’ll be buying shares now it’s a done deal. On one level that’s a moral dilemma – on one hand I don’t see why I should be profiting at the expense of those Kiwis that can’t afford these shares. On the other, all I’d be doing would be buying back my grandchildren’s birthright – better they keep some of the wealth their ancestors built for them than have it go overseas.
Upon reflection however, I think that these are not going to be good buy at all. From an investment point of view the electricity companies being floated are effectively the same company. They’re regulated the same way, they’re majority owned by the same shareholder, they share the same (very) limited market, and they share the same well-matured technologies. These aren’t heavily R&D based high-tech exporting companies that have options to develop new products and sell them into international markets – they make their money by generating electricity in much the same way and by selling it to the same people. Which is why we were better off when the whole damn lot was being run as state owned monopoly infrastructure.
Add to that the fact that floating these companies will seriously skew the NZX toward being an energy company index with a few other sundry stocks and you’ve got a recipe for over-supply and very low growth in share value. If not a drop in value as more shares are rolled out.
Institutional investors know this. “Mums and Dads” not so much. I’m predicting that there’s a brief flurry of activity and a few short term gains based when Mighty River hits the market but that will be a bubble driven by the government spending tens of millions of (our) dollars on PR. What will definitely happen is that stock prices will drop as successive companies are floated. After all – how much demand is there for billions of dollars worth of what is effectively the same company selling the same product into the same tiny market?
The upshot will be that any trace of political good will amongst “mums and dads” who buy into Mighty River will evaporate once the second float knocks the value out of their investment. I’m guessing that’ll be the point at which institutional investors will start picking up shares.
But whether there’s significant gain to be made even after all the sales are made is anyone’s guess. The bulk of dividends will come from power price hikes but getting those will require some cartel behaviour which will be very hard to get away with. I also suspect future governments will have fewer qualms about intervening in the market to regulate essential services than the current late-20th century throwbacks. And if the sales are stopped before all the electricity companies are sold I’d imagine whatever companies remained in government hands could (and likely would) be geared to dominate the electricity market pretty quickly.
On the other hand, demand for electricity isn’t going away any time soon so, long-term, these could be good investments if the full sale goes through. Not quite the golden goose John Key’s making them out to be though. Oh, and we already own the bloody things.
So no, even putting the distasteful concept of having to buy assets I already own, I don’t think I’ll be putting any of my dollars into this float.
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