Michael Luke: Milford Asset Management expert on the market reactions to the Government's energy announcement

The Government recently unveiled its highly-anticipated energy sector announcement and it's prompted good news for the energy companies.

The share price for New Zealand's major gentailers raised on the NZX, with Meridian seeing a 5 percent increase.

Milford Asset Management's Michael Luke explained further.

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Episode Transcript

Speaker 1 (00:09):
You're listening to a podcast from News Talk sed be
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Speaker 2 (00:16):
Sounds like we may well be actually looking at the
possibility of building another coal fired power plant to replace Huntley,
because it's going to die in the next five to
ten years. Seventeen past six Michael Luke, Milford Asset Management
is with us A Michael Michael, are you there?

Speaker 3 (00:35):
Yep, Hey, thanks Jane good.

Speaker 2 (00:36):
Oh, I'm well, thank you and pleased to be able
to hear you now. Michael took me through this. How
the market react to the government's electricity review.

Speaker 3 (00:43):
Well, the share prices of our electricity companies rerected positively today.
Meridian rose the most, up nearly five percent, while Contact
Metcrean Genesis were up about one or two percent. Now,
that reflects a bit of a relief really in my view,
where there had been a bit of uncertainly hanging over
the sector for the past six months as investors waited

(01:05):
for the outcome of the Frontier Report and the government review.
I think investors are broadly supportive of initiatives aimed at
increasing and speeding up investment and energy. However, there had
been a bit of concern around the risk and the
impact of a major intervention like separation, which had seen
some caution from both international and domestic investors. Meridian was

(01:29):
the strongest, reflecting two things in my view. Firstly, an
energy import facility could reduce altricity prices during dry years,
which did impact Meridan a lot last year. And then secondly,
as the largest electricity company, Meridian has traditionally had the
most overseas ownership, so it was likely impacted the most

(01:49):
by international investor concerns around the government government review, which
have now eased.

Speaker 2 (01:55):
What did you make of the government allowing the gentailers
to raise capital, Well, well.

Speaker 3 (02:00):
I don't think the government had ever explicitly said they
couldn't raise capital. There has definitely been a bit of
a perception in the market over the last decade as
the gintailers couldn't raise capital without a commitment from the government,
as they couldn't delete their fifty one percent stakes. Now
I'm not sure it's been a major constraint, but it
would have been our constraints because the gintailers have to

(02:23):
balance their development pipelines, their debt and their dividend policies
and if you have uncertainty around the ability to raise equity,
that does mean you have to be a bit more
conservative in those other settings. I think that was probably
particularly hard to manage when there was a risk of
the ty smelter closing a few years ago, which would
have impacted the sector. And I think Contact Energy has
actually had a bit of an advantage here where Contact

(02:46):
is the only listed gin tailor without government ownership. They've
been able to be a bit more aggressive maybe in
their development activity, and that included raising four hundred mili
from investors back in twenty twenty one to build a
geofirm or power station. So investors have been happy to
support raisers to fund good venewable energy projects and overall,

(03:07):
I think it does a bit of flexibility on how
these autisted companies fund their development pipelines going forward, which
is welcome.

Speaker 1 (03:14):
Yeah.

Speaker 2 (03:14):
Do you think investors now have more certainty?

Speaker 3 (03:18):
Well, I think investors now know what to expect from
the current coalition, but that would change if there was
a change in government. There are also still questions on
how the industry solves our gas shortage as well as
dry year risk, so investors will continue to watch the
gas market and the LERG terminal procurement process. Ultimately, I

(03:38):
think it's fair to say there is more sendency for now,
but investors could still be cautious next year heading into
the election.

Speaker 2 (03:45):
Yeah, and hey Michael, thanks as always Michael Luke Wilford
ASSEIDT Management.

Speaker 1 (03:49):
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