Wednesday, 11 July 2012

Never Enough

At The Standard there's a post up that asks, in its very first line:
Are you keen to buy shares in Mighty River Power with a dividend return of 4% pre-tax?
No, I'm not, but that's not the point.  Once we get into the comments, "Tom Gould" has the sense to ask:
...where does the 4% pre-tax come from?
And it appears the answer is an opinion-piece by Vernon Small.  My googling skills have proved inadequate for the task of finding the article, but that's because I want to get a few posts written and also maybe sleep before work starts again tomorrow.

So I'll carry on, on the suspicion that the 4% is either a red herring, or irrelevant because it's nowhere near what investors expect to make.

One of the companies I expect will be interested in buying shares in almost everything the government is looking to sell is Infratil.  According to their website, Infratil is:
Infratil is an owner and operator of businesses in the energy (mainly renewable), airport and public transport sectors.
Their strategy involves working with the public sector.  From their website again:
Infratil prefers to invest alongside community interests (City Councils and Community Trusts).
One of the community interests they invest alongside is Trustpower, which is what became of Tauranga's electricity department.  Trustpower is listed on the NZX stock exchange, just like Mighty River Power is proposed to be, and it generates most of its electricity from renewables, just like Mighty River Power.  The difference is Infratil owns 50.5% and Tauranga Energy Consumers Trust owns 33%, with the remaining sixth being held by other parties.

I hope I've established that Infratil are the type of company that will invest in the sale of assets under the MOM Act.  So how much money do Infratil expect to make?

What blows the 4% suggestion out of the water is the first sentence in the About Us section of the Infratil website.  They are quite explicit in saying:
Infratil’s primary goal is to provide its shareholders with a consistent return of 20% per annum over the long term.
20%.  OMG, that's massive.
Trustpower customers are paying enough for Infratil to return 20% to its investors.  20%!  Does that mean their prices could be reduced by 20%?  And why shouldn't we expect the privatised electricity generators to do pretty much the same?

Which only leaves the question of how the 20% will be achieved.  The usual suspects are price rises, deferring maintenance and asset stripping.  I'm picking a mix of all three will occur.

The Cure - Mixed Up, 1990

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