Do it for the FREE sandwiches!
Dec 11, 2016
If you would prefer to listen to me read this blog post, please click on the play button.
If it was not for John Key selling on State Owned Enterprises then I would not have found myself at a Meridian Energy meeting in Queenstown on Monday. It was during this meeting that our Prime Minister Mr Key threw in the towel, not that I knew this at the time, so engrossed was I in the presentation which was the…
Meridian Energy Ltd Retail Roadshow
I am a customer and shareholder of Meridian but have never attended a shareholder meeting so I thought it was worth the one hour drive to check it out. Held at midday on a GLORIOUS day in Queenstown, attendees numbered in the 30’s. I’m talking quantity and not age; that was about 70 years by my estimation. It was an equal mix of women and men. One lady was very unhappy about the angle of the screen and had to move, another man chose to sit behind me and breath very heavily, which almost blocked out the sound of his phone ringing incessantly on ‘silent’.
Looking over lake Wakatipu on a glorious Queenstown day.
The Investor Relations Manager Owen Hackston greeted me at the door and shattered my hopes of an upbeat seminar by promising me “It will be boring, electricity is really boring”! CEO Mark Binns was a nice bloke and continued on this theme and between the two of them they gave me the lowdown on what has been going down at Meridian. It is a tricky business trying to sell in increasing amounts something that most of us are trying to use a lot less of.
Why go?
Its an opportunity to hear it from the people who are running the show. I bought in when it was first listed by the Government with their share offer program in October 2013. I’m the Mum and Dad investor they talked about. Even though it is a rehearsed presentation there was the opportunity to ask anything you want. Which was not much. The investors seemed pretty content.
And as predicted by my father-in-law, the catering was excellent!
Fun Fast Facts on Meridian Energy:
I used a new tool to help me here www.simplywall.st (more on this another day soon) as well as www.nzx.com and the presentation itself: Meridian Energy Retail Roadshow Presentation
Largest generator of electricity in New Zealand - produced 32% of NZ’s electricity last year
100% renewable energy produced by wind farms and hydro stations
No government subsidies unlike many other countries
16% foreign ownership
The government owns 51%
Efficient generator with well maintained infrastructure
275,000 customers
One of 31 electricity retailers in a competitive market
They are in Australia and reaching to the UK with the Powershop brand next year
$650,000,000 pre tax earnings last year
Average home pays $6 day on electricity. Out of interest MY average daily charge is $4.26
Current share price $2.60
There has been a gross return of 8.9%
Based on current share price they are predicting a return of 7.4% this year (“considered above average relative to the market”)
They have low debt levels which they get criticism for (really?) but they say they need cash in reserves for ‘dry years’ and they pay dividends from this
Since October 2013 it has performed steadily and “been a good ride for investors” said Mr Binns. Sales are inching up in a tough residential market and they are fighting hard to gain growth in the medium to large business market.
What is coming up?
They are “not in a growth phase”. So I won’t expect big news or higher dividends.
They will announce the interim dividend payout in Feb 2017.
He talked about how when US Government Bond Rates change it affects the share price. You might have to view his presentation to follow that one but the gist I got was:
US Government Bond rates increase = Meridian Share price drops.
Will “trumpflation” have an impact? Time will tell...
NZ is relatively stable to do business in but Australia is a lot harder due to government interference and subsidies offered to new technology such as battery and solar set ups.
Tiwai Point Aluminium Smelter came up and could be a fly in the ointment. Meridian has a contract with Tiwai out to 2030 BUT as at 1st Jan 2017 Tiwai owners (Rio Tinto and Sumitomo Groups) have a right to terminate their contact with 12 months notice! Yikes. The price they will pay for their power is due a slight increase on this date as well BUT Mr Binns told us “not to feel sorry for them” as they still have the lowest price in NZ. Their hunch is that they will stay around a while yet but who really knows?
Their investment in R and D is low and instead they align themselves with those already doing the research. Sneaky! They are however using latest technology with their wind turbines (they have the biggest ‘fleet’ in NZ) and investing and innovating their Powershop brand. They are fans of electric cars for obvious reasons.
Te Āpiti wind farm
My last vote was for the Greens and I do have solar hot water and a strong interest in the environment, so I was interested in other technology. Meridian not so much. Mr Binns points out “In a grid large scale solar is hopeless and needs lots of flat land which is currently being used for agricultural land in New Zealand”. The costs of people going off grid are pretty high and I must admit I agree having looked at it for my own house and having watched my parents live (uncomfortably) off grid for 10 years. I do however fully support individual home owners wanted to go off grid.
This sentence is for my family who read my blog “Keith, turn the generator on…!”
Am I a happy investor?
Yip. Here are MY numbers:
I paid $9,150 back in Oct 2013 (payment was in two lump sums 18 months apart, during which time I got to collect dividends)
Today the value of my shares is give or take $15,860
In 2016 I received a total $940 of dividends after tax which instead of spending I reinvested in other ways. I receive payments twice a year and have done since 2014.
Final thoughts:
Utility stocks are always needed
There are still uncertainties for investors (Tiwai)
Yields are better than bank deposits - I’m hearing you there Mr Binns
I ENCOURAGE YOU ALL to turn on all your lights, plug in every appliance you have, it is GREAT for the share price. Thank you.
HOWEVER!
I found my first ever meeting really interesting to attend. Nothing startling or ground breaking to hear about but as Owen Hackston said at the start “electricity IS boring”. My kind of investment really: steady, stable, relatively predictable, just plods along and I don’t have to think about it much, but am safe in the knowledge that the Meridian team are doing the thinking for me.
But the more I learn about Meridian the less I realise I know about the inner workings of this particular business. I used the three tools mentioned above to research when writing this (see, I don’t just make stuff up) and although they clarify many things on one hand and were a wealth of information, on the other they provide such complex information that I can’t hope to understand it all. The meeting did not inspire me to take out individual shares in other companies which I know even less about. IT DID however encourage me to keep investing in my Index Funds where I am not required to do in depth research and know it all. I won’t be selling my Meridian shares any time soon. Call me lazy but I feel far more comfortable with Index Funds and spreading my money and risk over a wide range of things that I don’t have to understand the inner workings of. AND I might attend another meeting if given the opportunity, the quality of the sandwiches really was that high.
Happy Saving!
Ruth
If you want to sit the whanau down in front of Meridian’s slide presentation this very evening you can find it here: Meridian Energy Retail Roadshow Presentation
Podcast of the week!
An interesting listen this week was by the Mad Fientist where he interviewed a couple who are opposed to home ownership. I’m not selling up any time soon but it was a thought provoking listen:
