Investors likely to find Genesis offer tempting
Genesis Energy is looking like a tasty morsel for investors, say analysts, after the government priced the last of its share sales at the low end of expectations.
"It looks good," said Phil Anderson of Devon Funds Management. "They should have done this first up and there would have been good demand for the whole lot."
Matt Goodson of Salt Funds Management said it was shaping up as an interesting offer, "because certainly the the yield at first glance looks attractive."
Details of the initial public offer were announced yesterday[Thursday] by Finance Minister Bill English, revealing an offer price of between $1.35 and $1.65 a share, valuing Genesis at $1.35 to $1.65 billion.
The final price will be set on March 28 and investors will be able to buy shares from March 29 to April 11. The company is due to list on the NZX and the ASX on April 17.
At the offer price range, Genesis shares are expected to have a gross dividend yield in 2015 of 13.5 to 16.5 per cent.
The offer terms value Genesis potentially well below the range expected by analysts from UBS and First NZ Capital. UBS had valued Genesis at $1.6 to $1.9b, while First NZ put its range at $1.4 to $1.8b.
English said the offer had been structured differently from previous offers to make it easier for New Zealand investors to participate.
"We believe this indicative price range provides fair market value both for taxpayers and for New Zealanders looking to invest," he said.
The value range was "comparable to its peers in the energy sector."
Although Genesis is the biggest power retailer and has important generation assets at Huntly and Tekapo, it differs from other listed power companies in having a 31 per cent ownership of the Kupe oil and gas field, which provides a separate income stream.
Anderson said other power companies were priced to yield about 9 per cent, "so you're talking [a Genesis yield] 50 per cent higher than the rest of those comparable companies."
Even adjusting for the value of Kupe, Genesis "still looks cheap relative to the rest," he said.
Goodson said the Kupe income would not last forever, but the potential to share in further development at Kupe gave potential upside.
The bonus share offer terms are also sweeter than those for Mighty River Power, the first of the state-owned power companies to float last May.
Genesis investors will get one bonus share for every 15 they buy if they hold them for one year. The maximum bonus will be capped at 2000 shares per investor.
Investors in Mighty River had to hold their stock for two years before receiving the bonus of one share for every 25.
While the government sold down 49 per cent of Mighty River and Meridian Energy in the previous offers, it may sell as little as 30 per cent of Genesis, depending on demand.
The amount of shares it will sell will be decided on March 26.
English said the changes did not imply the government had made mistakes with previous offers.
"It's recognising feedback from the market that this isn't the first one [power company sale], it's the third one."
Proceeds from the sale would go to the Future Investment Fund, to be spent on assets such as schools and hospitals, he said.
"At the same time, New Zealand's capital markets have been strengthened and New Zealanders who invested in the stockmarket for the first time through the government's share offers are now earning dividends from shares," he said.
The Government aims to ensure Genesis is 85 per cent New Zealand owned after the sale.
The Government's power company sale programme has been hit by potential regulatory upheaval in policies announced by the Labour and Green parties ahead of the general election this September.
The Genesis offer document did not quantify the effect of the potential changes on its profits, save to say they would have a "material adverse effect on Genesis Energy."
Other risks included potential changes to transmission pricing, charges on water use and other regulatory changes.
The Genesis float follows the government's sell-down of stakes in Mighty River Power, Meridian Energy and Air New Zealand.
Genesis chairwoman Jenny Shipley, who was chairwoman of the Mainzeal construction group which collapsed last February owing about $130m, said she did not think her credibility was affected by the company's failure.
"You always have to take the view as director and chairman as to whether or not you can continue to act in the best interests of the company. I most certainly focus on that," she said. "I'm very proud to be chairman and continue to enjoy the support of ministers and I intend to continue [as Genesis chairwoman]," she said.
Indicative price range: $1.35-$1.65 a share
Implied market capitalisation: $1.35-$1.65 billion
Shares on offer: 30-49 per cent of the company
Prospectus available now
Final price set: March 28
Offer opens: March 29
Offer closes: April 11
Stock exchange listing due: April 17