Power companies gain as investors bet on National Party win

Investors in listed power companies appear to be betting the National Party will retain the government benches at Saturday's general election, leaving the sector's existing regulatory structure intact.

The NZX Energy Index has gained 6.8 percent over the past 30 days, outpacing the 2.1 percent increase on the benchmark NZX 50 Index, as polling shows a National-led administration is more likely to be returned in the Sept. 20 vote than for the government to change to a Labour-led government, which is promising major change to the electricity market . That's a turnaround from last year when polling was showing a pick-up for the opposition parties, which have pledged to introduce a single buyer of wholesale electricity in a bid to push down retail prices. The NZX Energy Index dropped 9.6 percent over 2013, compared to the benchmark's 17 percent rally.

The energy index's constituents include partially-privatised state-controlled energy generators and retailers, Meridian Energy [NZX:MELCA], Genesis Energy [NZX: GNE] and MightyRiverPower, as well as TrustPower, Vector, New Zealand Refining, Z Energy and minnow power company NZ Windfarms.

"There is a clear set of policies out there which is quite different between the two parties and the market is always just a weighing machine between the two," Matthew Goodson, managing director at Salt Funds Management, told BusinessDesk. "The movements in the electricity share prices have been a very good barometer and very closely correlated with opinion polls."

According to Radio New Zealand's Poll of Polls, which averages political polls results, the incumbent National-led government and Prime Minister John Key appears likely to be able to form a third term government with voter support at 47.5 percent, below its 52.5 percent peak in July. With its potential coalition partners, the National party is above the combined poll average for Labour (24.3 percent) and the Greens (13.7 percent) of 38 percent. In mid-August and early Septembe,r support for National weakened below 50 percent, as ongoing political scandals surrounding allegations of cash-for-comment blogging and leaking dented Key's brand and saw Justice Minister Judith Collins resign from cabinet and ministerial positions.

"Prior to the election campaign starting, the market had priced in a modest political risk discount. That discount perhaps heightened a little bit at one point during the campaign but it's now almost entirely disappeared," Goodson said.

The opposition parties unveiled plans to overhaul New Zealand's electricity market on the eve of the government's MRP selldown in May last year. The operator of nine hydro stations on the Waikato River initially traded above its $2.50 initial public offer price before slipping as low as $1.945 in January. It has since gained some 27 percent and touched a 16-month high of $2.465 on Sept. 11. Meridian, which debuted at $1.00 per share last October and dropped as low as 88.5 cents last December, has since advanced some 61 percent to reach a record $1.415 on Sept. 15.

Meanwhile, Genesis, the last of the government's assets to be sold down, debuted on the bourse in May with an IPO price of $1.55 and has advanced some 26 percent to touch a high of $1.95 on Sept. 15. Contact Energy, which was fully privatised in 1999, traded at a low for the last two years of $4.81 in late November, and is trading at $5.57 today. The company issued its annual report this week, opening a flank for media reporting on the controversial size of electricity sector chief executives' pay packages.

Contact's chief executive, Dennis Barnes, is reported to have been paid a total in cash and deferred share entitlements of $1.7 million in the last financial year.

"I think a lot of the policy is unknown," said Craig Stent, director at Harbour Asset Management. "I don't think Labour or the Greens know what's likely to be implemented and they have pushed out the timetable a wee bit as well so if they did get in it is still going to be another two to three to four years before anything is actually done."

(BusinessDesk)