21 Jan 2014

Analyst rates Meridian Energy receipts

2:36 pm on 21 January 2014

An analyst rates Meridian Energy's instalment receipts as worth buying and values them at significantly higher than the current share price.

Craigs Investment Partners analyst Grant Swanepoel expects the receipts to be trading at about $1.24 in 12 months' time, compared with the share price early on Tuesday afternoon of 98.5 cents.

Mr Swanepoel says if his price target is achieved, including dividends, that would mean a 35% annual return.

His central valuation of the Meridian instalment receipts, plus the 50c additional payment due in May 2015, is $1.68.

However, he says the material political risk facing the electricity industry means the fully paid shares could be worth anything between $1.29 if the Labour Party wins this year's general election and $2.07 if the National Party wins.

Mr Swanepoel says the market has more than adequately priced in the political risk. He says the six months to December were very positive for Meridian, with rainfall into lakes and customer growth well ahead of last year's prospectus forecasts.

He expects Meridian's operating profit for the 12 months to June will come in at $569.9 million, beating the prospectus forecast by $21.5 million.