Mark Lister: Meridian performance shows float offer too cheap

Meridian Energy shares have been a bumper buy for investors. Photo / Simon Baker

The Crown received $1.8b for a 49% stake, which is now worth more than $3.2b

Meridian Energy shareholders are about to be asked to pay the outstanding 50c a share they still owe the Government. When Meridian floated on the sharemarket in late 2013, investors made an initial payment of $1, with the remaining 50c due in 18 months.

That year and a half has flown by and on reflection, this instalment receipt structure has worked brilliantly for investors. They have been able to collect the full dividend payment while having put up only two-thirds of the capital, which has supercharged the dividend yield investors have been receiving.

Even after the additional 50c is accounted for, Meridian will still be offering about a 7 per cent gross dividend yield, so it won't necessarily go out of fashion with investors after this payment is made in May.

Since listing at $1, Meridian shares have more than doubled, providing investors with a return of more than 100 per cent in less than 18 months. If dividends are included, this return jumps to 125 per cent over the period.

Utility companies such as Meridian are supposed to be predictable companies that offer steady (yet modest) returns. They aren't supposed to double in price within barely a year the way a high-growth technology share might.

Part of this can be explained by a fall in interest rates over the period, which has made high-yielding shares more attractive and seen investor demand push up share prices.

But with the benefit of hindsight, another key reason for such a strong performance is that they were probably sold a little too cheaply in the first place.

In my opinion, the blame for that rests firmly with the Opposition political parties of the time, Labour and the Greens.

The "NZ Power" reform policy they championed through 2013 and early last year was heavy on emotive rhetoric, and short on detail. Whenever the proponents were quizzed about how it would work or be implemented, there didn't appear to be many clear answers.

Labour and the Greens seemed to give up on this policy after the last electricity IPO was completed, and it didn't get nearly as much airtime after that. That adds weight to the view that it was dreamed up only to derail the IPO process.

In that respect, it failed. All it succeeded in doing was creating political and regulatory uncertainty among investors, and reducing the price the New Zealand taxpayer was paid for the 49 per cent of the assets now owned by private investors and managed funds.

In hindsight, it seems Labour and the Greens might have almost single-handedly contributed to a significant transfer of wealth from the average New Zealander (as the seller) to a much smaller group of people - those who could afford to buy shares in the IPOs.

The Crown received $1.8 billion (including the 50c a share due shortly) for the 49 per cent of Meridian sold, and that stake is today worth over $3.2 billion. The 49 per cent of Genesis sold down a few months later for $760 million is now worth almost $1.2 billion.

Had it not been for the uncertainty that was created at the time by the Opposition, the IPO sale prices could have been quite a bit higher.

In hindsight, it seems Labour and the Greens might have almost single-handedly contributed to a significant transfer of wealth from the average New Zealander (as the seller) to a much smaller group of people - those who could afford to buy shares in the IPOs.

While those who bought these shares will be celebrating some excellent returns from investments that should have been relatively boring, maybe the rest of the country is due a belated apology from Labour and the Greens for doing them this disservice.

• Mark Lister is head of private wealth research at Craigs Investment Partners. His disclosure statement is available free of charge under his profile on www.craigsip.com. This column is general in nature and should not be regarded as offering specific investment advice.