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UPDATED: Genesis shares list at a healthy premium

Shares in newly floated electricity company Genesis Energy [NZX: GNE] have opened their first day on the New Zealand stock exchange at a healthy premium to the issue price paid by investors.

Investors in the government privatisation of 49% of Genesis paid $1.55 per share and at the listing the first recorded price was $1.81, for an immediate gain of 17%.

At $1.80 a share the implied gross dividend yield in the 2015 financial year is 12.3%, based on prospectus information.

Initial turnover saw 21 million shares traded in the first twenty minutes with 458 trades worth $38.8 million.

Heavy public interest in the last chapter of the government's partial privatisation programme briefly crashed the NZX website within half an hour of the listing.

Nigel Scott, a financial advisor at Craigs Investment Partners, said early trading was mostly between institutions.

“It’s really insto to insto stuff here with retail probably coming from the buy side.

“It’s a healthy start. This the smallest of the three [state electricty company] listings, but there’s a lot of interest due to the yield and people are probably paying to top up their holdings from the first part to try end up with a relevant holding in their portfolio.”

Genesis' climb to $1.825 in the early afternoon gave holders of the 49 percent that was sold an immediate gain of about $135 million.

"What it has done is created demand for other electricity generators listed on the market as well," said Grant Williamson, a director at Hamilton Hindin Greene. "It's a very nice premium for investors who have got shares."

Fellow state-controlled gentailers Meridian Energy and Mighty River Power also advanced after the listing, rising 1.7 percent to $1.175 and 0.9 percent to $2.205 respectively. Contact Energy, which was fully privatised in 1999, gained 1.6 percent to $5.59 while Infratil-controlled TrustPower gained 0.5 percent to $6.48.

Mr Williamson expected Genesis' share price to take two weeks to settle, as supply and demand for the stock evened out.

"Certainly looking at the future dividend yield and such like the stock still doesn't look that expensive even at these levels," he said. "There will be good interest in the shares particularly from income investors."

Good deal
Speaking at a listing ceremony at the NZX headquarters in Wellington, Finance Minister Bill English said: "Taxpayers get a good deal and we believe we've got a pretty good deal across the whole programme," referring to the four asset sales over the last 13 months, which have raised a total of $4.7 billion.

"We went to the market where $1.55 was a better price than expected but markets shift," said English. "We've had different experience with Meridian and again with Mighty River Power."

While Meridian shares are trading above their $1 a share issue price last November, MRP shares are still nearly 30 cents below their offer price last May of $2.50 a share.

Green Party co-leader Russel Norman said the Genesis price stag showed taxpayers had "missed out on an additional $130 million of revenue by the National Government mispricing Genesis Energy."

In all, 500 million shares were purchased in the IPO and due to high demand many investors had their allocations reduced significantly on a progressive scaling basis.

Retail investors who applied through the public offer had their allocations capped at $5000 worth of shares, while the broker firm offer was also reduced by 20%.

The Genesis float raises $733 million, bringing the total proceeds from the share offer programme that also included Mighty River Power and Meridian to $4.7 billion, once the second installment of Meridian shares are paid for.

The plan was initially to have raised between $5 billion and $7 billion, but the near commercial failure of state-owned coal miner Solid Energy saw that company removed from the programme.

Genesis sweetened
More than 68,000 retail investors were allocated shares in Genesis and the government says overall 111,000 common shareholder numbers were issued during the share programme for the three energy companies.

The MRP sale last May attracted 113,000 individual investors but Meridian attracted just 62,000.

Demand for Genesis shares was possibly higher than expected given the relatively lukewarm response to Meridian when demand may have been dampened by the performance of Mighty River, which continues to trade below its offer price of $2.50 and first day close of $2.62.

Mighty River's share price performance is said to have been hampered by the Labour-Greens policy to install a central buyer of power, effectively capping prices that could be charged for electricity.

The government sweetened the Genesis offer with a bonus scheme and a lower initial offer price than expected. Investors that bought shares and keep them from more than 12 months will be issued one bonus share for every 15 shares they hold, up to a cap of 2000 bonus shares.

The dividend yield forecast is also attractive.

Genesis Energy has the most energy customers. In addition to having diverse generation, including hydro, natural gas, coal and wind, Genesis has a 31% share in the Kupe oil and gas field

In terms of the financials, bottom line net profit is set to come in at $41.8 million for the year to June 30 but forecast to more than double to $95.4 million in the year to June 2015. 

- additional reporting from BusinessDesk

dbridgeman@nbr.co.nz

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Comments and questions
9

Those who will moan about the shares being sold at a good premium today will be either envious of those who have the money to buy numbers making it worthwhile to do so or they are the people who use the internet to trade shares and therefore have not built up a relationship with a broker to get a reasonable allocation out of the corporate pool. That is serious short sightedness as such a relationship has benefited many today. Just like the people who buy on the internet and moan when a shop in their town closes.

21 million shares in 458 trades is an average of 45,000+ shares per trade.

With the heavy scaling that went on, who but international stags would have been in line for this 'windfall'?

'Green Party co-leader Russel Norman said the Genesis price stag showed taxpayers had "missed out on an additional $130 million of revenue by the National Government mispricing Genesis Energy."'

But by that logic they more than made up for that with the overpricing of MRP? Russel Norman shows once again that he doesn't understand economics; and furthermore can't even hold a coherent argument together.

Typical Greens - Russell Norman would have slated the listing anyway:
Pricing above $1.55 - taxpayers missing out, Govt underprice value.
Pricing under $1.55 - Govt plan for sell down failed as no body interested plus Mum and Dad investors ripped off.
You can never win and they never have anything positive to say about anything unless it involves bicycling and solar energy.

And moreover the Crown's 51% is worth more than it was yesterday by over $130m R Norman says it missed out on!

1. All new floats must have an incentive for the Public to apply for shares, otherwise every float would be a FLOP.

2.Everyone in this float had equal opportunity to apply for a Min of 645 shares and with $5000 you received 3225 shares. If the whole family had subscribed for shares by 5 members, producing $25,000 (Now Worth $29,000) they would now own 16,125 shares which is far greater than any share brokers allocation to a private client.

3. All floats must have an element of an INSTITUTIONAL shareholder otherwise large floats Like Meridian, Mighty River and Genesis would not happen.

4. In the case of Meridian, shareholders have had months to buy many more below $2.00 thus giving them an average entry price of $2.20 plus 2 dividends on the way ??

What more do investors want ?? I am confused ??

Believe me private investors got some big numbers off their brokers. You look after them they look after you . Good day not to be an internet trader.

Couldn't help scoffing at your final comment. We all know what investors want...profit !
What I want is some hot water. Sitting here in a main suburb of Auckland with power on...yes aren't I lucky, but no hot water for the last 2 days because one of the drone wont flick the pilot wire.
3rd world service I reckon yet the layers of companies with mega budgets in every field can swan around duplicating corporate resources pretending we have the benefits of competition.
Shame I threw away the old copper and fireplace because I reckon I'm still closer to the cave than the industrial revolution despite what the Genesis brochure told me.

Nice pop, but the lousiest business out of the power companies. It's perhaps useful as a hedge against unnaturally dry weather, as if the dams don't fill then those expensive Genesis generators can power up. Meanwhile the prospectus gave little indication that they understand safety culture, a very poor omen for a company that should have very high levels of controls.
Now that they are in market and priced, Meridian and MRP should make for much better long term investments.