Industry cool on steaming energy stocks

By Geoff Senescall

Listed power stocks received a fillip yesterday, riding up on the coat-tails of the huge price paid for a 40 per cent slice of state-owned Contact Energy.

Tauranga-based TrustPower led the charge with an 13c rise to 350c with Takapuna-based United Energy gaining 15c to 630c.

Another significant beneficiary was Infratil New Zealand, a major shareholder in TrustPower, which rose 7c to 147c.

But while energy stocks enjoyed support, industry watchers said it was too early to re-rate the industry.

One broker said that Edison Mission paid a premium for what is a strategic parcel, from which it could also extract financial benefits such as tax and depreciation allowances.

It was likely that the proceeding public issue would be priced on multiples similar to existing listed assets, he said. That meant a price closer to 300c was more likely than the 500c the Edison price implied.

Stephen Walker of fund manager AMP said he was not going to revalue energy stocks on the back of the price paid for Contact.

"We are looking forward to getting a prospectus so we can access the value for ourselves," he said.

What Edison paid would not affect the price AMP would bid for stock in next month's institutional tender process.

"We understand the riskiness of assets. We understand how to price that."

Mr Walker also said that it could be argued that values of energy companies might fall given there was now a new player competing in this market rather than an existing player like TransAlta, which hotly contested the bidding for Contact.

However, some felt the prospect of continued market activity would help drive prices higher.

David McClatchy of fund manager Armstrong Jones said corporate activity in the utility sector was far from over.

TransAlta's failure to win the cornerstone process now meant it had a mismatch between its customer and generation base.

It would now be looking at its options.

Indeed, after initial disappointment about missing the sale, TransAlta's share price bounced back. In opening trade yesterday it traded as low as 247c before closing at 265c, down 8c.

Mr McClatchy said with the good price received for the cornerstone stake the Government must be reviewing whether or not to "bring forward the sale of the three ECNZs."