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 (00:00):
It sounds like we may well be actually looking at

(00:01):
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 2 (00:18):
Yep, hey, thanks Jane good.

Speaker 1 (00:20):
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 2 (00:26):
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

(00:48):
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

(01:12):
the strongest, reflecting two things in my view. Firstly, an
energy import facility could reduce altricity prices during dry years,
which did impact Meridian 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

(01:33):
by international investor concerns around the government government review, which
have now eased.

Speaker 1 (01:38):
What did you make of the government allowing the gentailers
to raise capital?

Speaker 2 (01:43):
Well, well, 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 gentailers 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,

(02:03):
but it would have been our constraints because the gintailers
have to 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 TI smelter closing a few years ago,

(02:23):
which would have impacted the sector. And I think Contec
Energy has actually had a bit of an advantage here
where Contact 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
mill from investors back in twenty twenty one to build
a geofirm or power station. So investors have been happy

(02:46):
to support raisers to fund good venewable energy projects and overall,
I think it does provide a bit of flexibility on
how these ultrusted companies fund their development pipelines going forward,
which is welcome.

Speaker 1 (02:57):
Yeah. Do you think investors now have more certain.

Speaker 2 (03:01):
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 LNG terminal procurement process. Ultimately, I

(03:22):
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 1 (03:28):
Yeah, and hey Michael, Thanks as always, Michael Luke, Wilford,
ASCIDT Management. For more from Heather Duplessy Allen Drive, listen
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