23 Apr 2013

$100m revenue hit foreseen for Mighty River Power

6:32 pm on 23 April 2013

An equity analyst says the Opposition's plans for the power sector is likely to slash returns for electricity companies and could reduce Mighty River Power's operating income by $100 million.

The Labour and Green parties last week announced that if elected in 2014, the would set up a single buyer of electricity.

The announcement forced the Government to temporarily halt the sale of shares on Monday to update the Mighty River Power offer document.

Sales resumed as of midnight on Monday, though investors have until 1 May to withdraw applications.

Morningstar Research senior analyst Nachi Moghe said the Opposition's proposal is extreme since there is ample competition in the market at the moment and regulating prices through a single electricity buyer would discourage investments in the sector in the long term and, if successful, would significantly drop the value of Mighty River's shares.

Mr Moghe said uncertainty over whether there will be regulatory change means the Government is likely to set a price for the shares at the lower end of the indicative price range of between $2.35 and $2.80.

However, he said that if the Opposition is unsuccessful in 2014, Mighty River's returns are likely to exceed the cost of capital over the longer terms and in that case, he believed $2.70 would be a fair value for the shares.