Mighty River Power and Meridian Energy's utility-style earnings and regulatory risk mean they fail the investment criteria for Fisher Funds' managed Kingfish, according to the NZX-listed equity investor's quarterly newsletter.
Kingfish did not participate in the government's selldown of Mighty River Power, whose shares are trading below the $2.50 sale price "and is unlikely to participate in the pending float of Meridian", according to the newsletter from Fisher Funds Management managing director Carmel Fisher and senior portfolio manager Murray Brown.
Kingfish listed in 2004 and invests in between 10 and 25 growing New Zealand companies. Its biggest investments include Ryman Healthcare, Mainfreight, Fisher & Paykel Healthcare and Summerset Group.
Fisher Funds uses an in-house analysis tool called the STEEP process, which scores companies against criteria for strength of business, track record, earnings history, future earnings growth and people/management.
The two state controlled power companies "do not score high enough in the growth elements of our STEEP process to warrant investment in the Kingfish portfolio", which is a long-term growth fund, Ms Fisher says.
STEEP was used to "identify quality businesses with growth orientation, that could double earnings over a three-to-five-year period," Ms Fisher told BusinessDesk. "We don't believe Mighty River Power and Meridian can do that."
While the two companies did not qualify for the fund manager's New Zealand equity portfolios, they had been included in its property and infrastructure-type portfolios and in its KiwiSaver balanced funds, where "you don't have to have 'shoot the lights out' earnings growth", she says.
Units of Kingfish were last at $1.30, valuing the fund at $150 million, and have gained 11 percent this year. Might River Power fell 1.3 percent to $2.37.
The government has indicated a possible selldown for Meridian in the third quarter of this year.