Uncertainty still dogs MRP shares

JASON KRUPP
Last updated 10:34 28/06/2013

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The announcement that Mighty River Power's Ngatamariki geothermal station has been ramped up to full capacity during testing appears to have done little to soothe the uncertainty stalking the share price.

MRP shares fell 0.9 per cent yesterday to $2.24, bucking a 0.5 per cent gain on the benchmark NZX 50 Index.

At this level, the state-controlled power company is trading 4 cents off its all-time low.

That is a notable drop from the $2.73 level seen when the shares made their debut on May 10.

Yet the addition of the 82-megawatt plant to the firm's generation portfolio has been highly anticipated by institutional investors, who expect it to boost MRP's cash flows.

Forsyth Barr electricity analyst Andrew Harvey-Green, in a recent brokerage note, said he expected the shares to climb to $2.35 in 12 months' time, boosted by base-load generation from Ngatamariki.

That would take 2014 earnings before interest, tax, depreciation, amortisation and fair value movements to $505 million, or $7.5m above Mighty River's own prospectus forecasts.

According to the brokerage's reckoning, that should see the share price gain 1.3 per cent over a 12-month period and, with a next dividend yield of 5.6 per cent, deliver a total return of 6.9 per cent.

"Whilst MRP's growth and development phase is coming to an end, MRP is moving into a new phase of focusing on generating cash to be returned to shareholders," Harvey-Green said.

Mighty River said several months of testing still need to be completed before the station is officially declared fully operational in the middle of 2013, but Harvey-Green anticipates full power output will be achieved by the end of the year.

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