Sometimes the people who are asking are not clients, so I have no idea what other investments or assets or debt that they have. Consequently I must either avoid the question or answer in generic terms only.
Nb. Mighty River Power is commonly known as MRP.
How much will you get?
Some 400,000 New Zealanders have registered interest in buying the shares, and if it is anything like Contact Energy or Auckland Airport (past issues), most people will only get about $2,000 worth.
If you have investments of say $100,000 including your Kiwi saver, then $2,000 of MRP shares will make up a measly 2% of your total assets.
If both you and your husband/wife get some (say $4,000 worth) but you both have Kiwi savers and some other savings, again it will be very small percentage of your overall assets.
A pretty inconsequential amount.
Investment best practices
Considering the recent debacle in Cyprus, and the fact that the NZ Reserve Bank can help itself to your NZ bank deposits in extreme circumstances, clearly nothing is risk free.
The investor’s best friend is diversification;
- bonds on and offshore
- NZ property
- listed property trusts on and offshore
- shares on and offshore
But never ever too much in any one asset class.
The diversified portfolio
You might like to have a “little flutter” with MRP shares and you may or may not do quite well. It is unlikely you will get a large allocation, and so whatever happens it will only make a very small proportion of your portfolio.
For a lot of people, MRP shares will just be a little investment that is interesting, and feel they own part of NZ.
For those of us who get MRP shares, they will only be a little tiny piece of a large jigsaw.
Are they good investment?
Since it is well known that no one can consistently forecast interest rates, exchange rates, economic events, government policy, or pick stocks, who would know?
However it is likely that the government will want you to make some money and then you might vote for them again at the next election. Conversely they cannot price MRP cheaply as that will be too obvious, and anyway their main objective is to put some money in the government coffers which are currently pretty empty.
So it is likely to be priced slightly in the investors favour but maybe not a lot.
Electricity is an essential service so shares in electricity should be pretty solid – fair reasoning but there are many variables;
- the government favours competition between the electricity companies which might drive prices down and hence profit for MRP down
- if MRP are seen to be overcharging, the government may well step in and impose price and profit limitations. If this were to happen it would put a cap on the MRP share price to some extent.
I understand that some states in the USA impose profit price limitations on utility companies .
Some commentators seem to think that the shares will pay out profits as regular dividends that could be as high as 5 to 6% pa.
Bank rates are about 4% gross, so this would appear to be quite attractive.
Any investment has its unique negative aspects;
- it needs rain to fill the dams
- MRP assets are largely concentrated close to or below Lake Taupo. This is a known volcanic region, and most of MRP’s assets would be severely damaged or totally wrecked in the event of big eruption or a serious earthquake (a good reason to diversify investments offshore too)
- the Green movement in NZ is strong and has been pretty successful of late in opposing any changes to the landscape such as new hydro dams
- wind energy to some extent seems to be catching on and may become serious competitor
- solar energy must be about to grow significantly too
- MRP will need to spend money developing new forms of energy which of course will bite into profits and dividends
- demand for power could wane if the Tiwai aluminium smelter closes, reducing our prices and MRP profits
Nothing is risk-free, and diversification rules - but we all know that, don’t we ?