Australian funds biggest sellers of Mighty River shares

Australian funds were the big sellers in Mighty River Power over the past month. Photo / NZ Herald

Australian funds were among the biggest sellers of MightyRiverPower as its shares sank to a post-float low last month, though the exit may been more to do with a slump in their home market than a change of sentiment on the power company.

Market data for the top 100 shareholders in MRP between May 24 and June 21 shows the largest reduction was by HSBC Custody Nominees (Australia), which reduced its holding by 6.1 million shares, or 55 per cent, to 4.99 million.

That saw it fall to 10th-largest shareholder from fourth. JP Morgan Nominees Australia trimmed its holding by 1.4 million shares to about 4.4 million and Melbourne-based CS Fourth Nominees sold 2.8 million shares to end up with about 1.8 million.

Shares of MRP slipped to $2.46 on May 24, below the $2.50 initial public offering price, and touched a low of $2.20 on June 21. In the same period, the S&P/ASX 200 Index dropped about 7 per cent.

With the slump in Australian shares, "Australian institutions that had put money into MRP were probably prepared to pull money out pretty quickly to put into their own market because some of their own stocks would have fallen even further," said James Smalley, a director at brokerage Hamilton Hindin Greene.

They may also have picked up a currency gain taking their money home as the kiwi dollar advanced on its Australian counterpart, he said.

MRP shares have since recovered, trading recently at $2.42. The shares are rated a 'hold' based on the consensus of six recommendations compiled by Reuters, with a median price target of $2.50.

Forsyth Barr analyst Andrew Harvey-Green put a 12-month price target of $2.35 and a rating of 'hold' in a report dated June 19. His discounted cash flow valuation was $2.18, including a discount of 20 cents for the Labour/Greens policy for a single buying agency. It also assumed wholesale electricity price growth of 2 per cent a year and electricity demand growth of 0.7 per cent.

"Whilst we like the underlying industry characteristics (robust earnings & solid growth), there are regulatory (single buyer model and transmission pricing) and demand issues (threat of aluminium smelter closure and generally weak demand) facing the industry," he said in the report.

Harvey-Green called MRP "an attractive business in an industry that has a solid earnings track record." He forecasts a gross dividend yield of 7.2 percent for 2013, rising to 7.8 percent in 2014.

Nominee companies are typically custodians that hold and administer securities for the actual owner. The ultimate owners often can't be easily identified.

The second-largest shareholder in MRP as at June 21 was New Zealand Central Securities Depositary, the Reserve Bank-owned company that holds shares for its NZClear members, which include banks, fund managers, custodians and trustee companies. Its holding reduced by 2.2 million shares to 194 million, second only to the Crown with 724.6 million shares, or 51.76 per cent, of MRP.