A broker has sent through a research note on Contact Energy and Mighty River which I found interesting. The notes look at what the base price of the two companies should be, and the effect in their prices of Tiwai Point and the Labour/Green nationalisation policy.
- Base case scenario – MRP a target price of $2.60, 17% higher than current market price of $2.22, and Contact a target price of $6.00, 12% higher than current market price of $5.37
- Should Tiwai Point be fully exited, our analyst sees this applying an 8.5% hit to his Contact valuation, but only 6.6% to MRP
- The Labour / Green proposal, if implemented, is far more damaging, resulting in a 23.3% drop in his Contact valuation but a far larger 31% hit to MRP (dropping the valuation to $1.78)
That’s an (un)impressive amount of sabotage. So not only would we end up destroying the market for power generation, and increasing the risk of black outs, we’d also wipe out a quarter to a third of the value of investors in those two companies.Tags: Contact Energy, Mighty River Power