The MRP risks

March 9th, 2013 at 9:00 am by David Farrar

Jason Krupp at Stuff reports:

In addition, some energy sector commentators have questioned MRP’s decision to actively pursue geothermal projects in Chile and the United States as opposed to passively investing via an investment fund structure as it has done in the past.

Energy analyst Molly Melhuish said investors needed to be aware the strategy shifts MRP’s risk profile away from a “safe, utility-type investment prospect”, which is how the firm is being marketed to investors.

Countering those negatives is the company’s position within the New Zealand market, with MRP generating and selling about a fifth of the country’s power, a position that gives it fairly defensive earnings.

It is worth making the point that does have risks around its investment plans. I don’t say that as a bad thing – it is in fact the risk which is one of the reasons the Government should not be sole shareholder.

Some people think running a company is easy. Just produce your product, mark it up, and sell it. Bang – guaranteed product.

Solid Energy is a good example of how quickly things can change. The global price for coal dropped 30% over two years. While power prices are less volatile, demand can be variable and you can end up with over-supply.

I am looking forward to reading the prospectus.

7 Responses to “The MRP risks”

  1. Cato (1,095 comments) says:

    Events are vindicating your long held line on this.

    It’s better for the economy if these companies take calculated risks with a view to achieving growth. It is prudent for the government to reduce its exposure by letting some private capital share the burden.

    Question: if, in 5 years, the share sales are complete and the country hasn’t been transformed to third world status, will Labour suffer for their scaremongering?

    Vote: Thumb up 2 Thumb down 0 You need to be logged in to vote
  2. davidp (3,866 comments) says:

    Solid Energy’s problems seem to be that they bought in to a Green Energy strategy that was nonsense. The same strategy failed miserably in Spain too, where Green Energy led to a nett loss of jobs across the economy. The failure of Solid Energy might be a good thing in the long term if it serves as a warning for the perils of government ownership of businesses, and of what the Greens would do to NZ’s economy if they were ever in power.

    Vote: Thumb up 5 Thumb down 0 You need to be logged in to vote
  3. peterwn (4,287 comments) says:

    Can’t figure why MRP wanted to take the piss out of the Labour / Green members on the Select Committee. Has not served any useful purpose than a bit of Utu. If MRP was not up for part sale and the CEO wanted another 5 year term after 2014, I think MRP would have taken the questions more seriously.

    Vote: Thumb up 1 Thumb down 2 You need to be logged in to vote
  4. Grendel (1,064 comments) says:

    always interesting to see what bits of an interview get used. i spent 45 minutes on the phone with Jason talking over a lot of the pros and cons (from a financial planning perspective) of looking at the shares and i got 5 sentences at the end of the article (and he forgot to plug my company name – which is usually the tradeoff for talking to them for free).

    but unlike other interviews i have done these comments were almost entirely within context of what i actually meant. Jason is a good reporter in that respect (trained and skilled as Whaleoil would say).

    one of the key risks i pointed out was political risk, which is as DPF said, the goofy stuff that solid energy looked at becuase of political interference. the concern of having the govt own 51% is that the next govt decides it wants to double its own divident, or sent MRP off to spend billions investigating snail power or something equally wacky, and our investment suffers for it.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  5. Paulus (3,567 comments) says:

    There is always a risk in the Sharemarket whatever. Look historically in NZ shares.
    MRP and the other energy SOE’s haves a lower threshold of risk as the Government will own 51%.
    But it is a long term hold, so older people should consider whether it is in their long term interest to hold only such equities.
    They are not speculative up and at em shares, like some, with short term gains.
    They should form “part” of a portfolio.

    Vote: Thumb up 1 Thumb down 0 You need to be logged in to vote
  6. Johnboy (20,828 comments) says:

    I’ve decided to pull out of ewes and get into dams. šŸ™‚

    Vote: Thumb up 1 Thumb down 0 You need to be logged in to vote
  7. Steve (North Shore) (4,962 comments) says:

    Speeling Johnboy, speeling.
    I hope your mum knows about this

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote