Rally, crash, recovery, repeat…

Markets move in cycles and while there are increasing discussions around when the next market crash will occur, there is no need to panic; a correction is a normal and expected part of investing. Measures we take to manage the impact to your portfolio are already on our radar.

While I hesitate to use the word ‘crash’, it is the term used by most (overused by the media) to describe a ‘drop’ in share market values. It is part of a normal market cycle that has repeated for decades. As companies grow their earnings, their value increases; the Rally. The market factors in ‘expected’ future earnings and depending on its level of optimism, the market price overshoots fair value. If, or when, earnings disappoint relative to expectations, or an event or new information triggers a lower assessment of value, prices go down; the Crash. The drop is generally an overreaction and in due course prices return to their previous levels; the Recovery.

What is different this time is the length of the current rally. Historically market cycles have generally ranged from 4 to 7 years between peaks. It has now been 10 years since the last meaningful drop in market prices. So, does this mean a correction is imminent? In a word – no. There is certainly an increased risk of a correction as time passes, but it doesn’t mean it will be next week, next quarter or even next year. The doomsayers have been warning of a crash for years. This headline from the NZ Herald warning of a crash was from October 2016; almost 2 years ago. Since then the Dow Jones Industrial Average Index has gone from 16,000 to 28,000, this is a 75% gain over two years.

What will we do when markets ‘crash’? We will not pre-empt the drop and sell out of shares before they drop (research shows that attempting to time the market is futile), and we will certainly not recommend selling after the drop.  That is not to say we are not prepared for a drop. In fact, we have been preparing for the next drop since the last one. We manage your portfolio knowing that the rally-crash-recovery cycle will always repeat.

These are four of the steps we have already taken to ensure your portfolio is well positioned to survive the next correction, whenever it may be, and benefit from the subsequent recovery and rally.

We limit exposure to riskier, share market investments to appropriate levels:

We periodically measure your risk profile, including your risk tolerance and risk capacity. This is often done using a formal tool such as the FinaMetrica or Morningstar test, or a conversation during initial or annual meetings. By setting a benchmark asset allocation, and during a bull market periodically rebalancing the portfolio back to those weightings, we are in effect selling high and buying low all the time. We are reducing the exposure to assets that have increased the most, and buying more of the safer, less exciting assets. Conversely, when shares go down, we will take advantage of lower prices and increase holding in those cheaper assets.

Diversification across and within sectors:

We spread portfolios across shares (equities), infrastructure, property, fixed interest and cash. Even within sectors, such as shares, we invest in different geographical areas, business sectors and company styles. Fund managers may hold 50 to 100 stocks within their fund, and we may hold 3 to 5 funds in a sector (or more). We tend to limit the exposure to any one fund to around 5% or 10% of a total portfolio. (You can see the exposure to each asset, and asset class, in the far-right column of a valuation report.)

Active funds management:

We outsource the day to day analysis, buys and sells of individual stocks to fund managers with a depth of resources to be able to do this far more efficiently than we could. We use a range of managers with different styles to actively buy and sell assets at their discretion. We regularly meet with them and buy research on all NZ and Australian based managers. If a manager feels that the markets are overly expensive, they may choose to take an active position away from the market – i.e. holding more cash and less shares.

Maintaining sufficient cash and short-term fixed interest to rebalance and fund withdrawals:

For clients that take regular, or even ad-hoc withdrawals, we try to maintain several months’ worth of expected drawings on call, and enough funds in short term fixed interest to cover several years of withdrawals. This way the access to cash is not impacted by share market movements, and we are able to buy more shares when they have ‘crashed’ to lower values.

If you are concerned about the next stage in the market cycle, or would like to discuss your portfolio, please call. We are only a phone call away.

How will the US election impact my investments?

With any change comes uncertainty, volatility, concern.  There is going to be a change in the US due to the current President not being eligible for re-election.  The choices?  Trump or Clinton?

Keeping in mind that there will be issues either way, we need to keep in mind that which is important, which is NOT the hype or controversy.  Your investments should be in companies that will still be around tomorrow, and the next day.  Yes the price will jump around a bit for a while, but standing still is often the only answer when everything is swirling around you.  Take the time to wait, to ponder, to be confident that you have made the right choices for you in the long term, 5-10 years, do not worry about the first 10 minutes of the news.

Here is what Bloomberg had to say on the matter:

Don’t Worry When the Stock Market Goes Crazy After the Election

By Oliver Renick – 7/11/2016, 6:00:01 PM

In the hours after the president is elected, equity investors need to brace for volatility. What they shouldn’t do is panic.

That’s because regardless of how prices react on Nov. 9, next-day moves in the S&P 500 Index are useless in telling what comes after. While the index swings an average 1.5 percent the day after the vote, gains or losses over the first 24 hours predict the market’s direction 12 months later less than half the time.

This matters because the compulsion to act in the vote’s aftermath is often very strong — stocks swing twice as violently as normal those days, data compiled by Bloomberg show. They plummeted 5 percent just after Barack Obama beat John McCain in 2008. But while nothing says Wednesday’s reaction won’t be a harbinger for the year, nothing says it will, either, and investors should think before doing anything rash.

“Trying to trade that is very difficult,” said Thomas Melcher, the Philadelphia-based chief investment officer at PNC Asset Management Group. “Even if the market sells off, if you have any reasonable time horizon, that should be a buying opportunity. The dust will settle and people will conclude the economy is OK.”

In the 22 elections going back to 1928, the S&P 500 has fallen 15 times the day after polls close, for an average loss of 1.8 percent. Stocks reversed course and moved higher over the next 12 months in nine of those instances, according to data compiled by Bloomberg.

Nothing shows the unreliability of first-day signals more than the routs that accompanied victories by Obama, whose election in the midst of the 2008 financial crisis preceded a two-day plunge in which more than $2 trillion of global share value was erased. It wasn’t much better in 2012, when Election Day was followed by a two-day drop that swelled to 3.6 percent in the S&P 500, at the time the worst drop in a year.

Of course, Obama has been anything but bad for equities — or at least, he hasn’t gotten in their way. The S&P 500 has posted an average annual gain of 13.3 percent since Nov. 4, 2008, better than nine of the previous 12 administrations. Data like that implies investors struggle to process the meaning of a new president just after Election Day, or infuse the winner with greater influence than they have.

“Some people are probably going to overreact, and there will be other investors trying to second-guess what those investors are doing,” said David Brown, a professor of finance at the University of Wisconsin School of Business, in Madison, Wisconsin. “There is a salience of short-term events, particularly bad events, that lead people to react to short-term information.”

Swings in industries are no more prescient than the broader market. The S&P 500 Health Care Index declined 3.6 percent the day after Obama first won; since then it’s the stock market’s third-best performing group with a 149 percent advance. Also meaningless is the victor’s party. The median S&P 500 gain in Democratic terms since 1928 has been 27.7 percent, according to Leuthold Group LLC, compared with 27.3 percent under Republicans.

“The results suggest that policy differences between the parties are either fully reflected in stock prices by the time a candidate officially takes office, overwhelmed by larger cyclical forces, or fundamentally indistinguishable from one another,” said Doug Ramsey, the firm’s chief investment officer. “In practice, all three factors are likely at work.”

Infusing certain days and events with special meaning is a tradition on Wall Street, with everything from Santa Claus to the Super Bowl supposedly holding influence for share prices. Lots of people believe the direction of equities on Jan. 1 contains insights into how the year will go in stocks, but the system has n o more predictive value than a coin toss.

Letting emotions rule investment decisions was a temptation that Erik Davidson resisted after the Brexit vote. On June 24, as the S&P 500 was plunging 3.6 percent on concern Britain’s vote would snarl trade and spur a global recession, the chief investment officer of Wells Fargo Private Bank said in a Bloomberg News story the selloff was a buying opportunity as investors overestimated the pain. Stocks are up 2.3 percent since he spoke.

“The markets could sell off if Trump wins, like we saw with Brexit, but we also saw how markets recovered,” said Davidson. “If Donald Trump is in office, it’s a concern, but there are so many other things that are going well and starting to turn the corner.”

That doesn’t mean it’ll all be smooth-sailing for stock investors. Equity volatility in the November of presidential election years has historically been 22 percent above the average for all months, according to data compiled by Bloomberg going back to the Herbert Hoover administration.

Since the outlook for rates and equities has lately been joined at the hip, that may be of interest to traders who are all but certain the Federal Reserve will hike rates in December. Since 1930, the S&P 500 has an average 30-day realized volatility of 19.2 in election-year Novembers, more than 20 percent higher than the historical average of 15.7.

Should the past prove to be prologue and volatility rise, the ride may seem even bumpier given the market’s current placidity. The S&P 500’s 30-day volatility registered at 16.8 on Monday, 55 percent below the average of all November months — both in and out of election years.

“It’s fair to say no one knows what these candidates’ policy prescriptions are going to be and that uncertainty will resonate into volatility,” said Tim Courtney, chief investment officer of Exencial Wealth Advisors, which oversees $1.5 billion in assets in Oklahoma City.

Shares For Good www.sharesforgood.com

Donate some shares to support New Zealand registered charities

Shares for Good has been established to provide a charitable home for unwanted shares and a place for those wanting to donate shares to benefit charities in New Zealand.

Many people have small shareholdings that are more bother than they are worth, keeping or selling. Just imagine the power those shares could have when combined… collectively they would make a real difference to non-profit organisations.

Shares for Good is a pro-bono collaboration between JBWere, NZX, Computershare and Link Market Services. 100% of proceeds from the sale of your shares goes directly to the recipient charity.

Note from Tanya:

I often find people with small packets of shares that are too small to sell and too much paperwork to keep, so this is a great option to do good and get rid of unwanted paperwork.

Genesis Energy – Brian Gaynors opinion

This article is well worth a read if you want to be reminded of the 27 years of state asset sales we have had and whether or not they worked (usually not).  If you are interested, click here…

Here is a taste of what you will find:

The Crown’s first privatisation was the sale of 103 million Bank of New Zealand shares, representing 12.9 per cent of the company, at $1.75 each in February 1987. The $180 million capital raising was an NZX record.

BNZ’s share price fell before the October 1987 crash as investors realised it had a huge exposure to the highly leveraged listed property and investment companies. Its share price finished 1987 at $1.30, 26 per cent below the issue price less than 12 months earlier.

The trade sale programme also had a discouraging start when New Zealand Steel was sold to Equiticorp for $327 million in March 1988.

NZ Steel was not in a strong financial position and Equiticorp was struggling to survive after the October ’87 crash and the Crown accepted payment in the form of Equiticorp shares. Equiticorp shares were worth $3.25 at the time but plunged to $1.

However, the sale contract required Equiticorp to arrange the buy-back of its shares at $3.25 on demand. Equiticorp chief executive Allan Hawkins was later jailed for illegal activities related to the repurchase of these Equiticorp shares from the Government.

The lesson from the BNZ and NZ Steel transactions was that the Crown should only consider an IPO when the SOE was in a sound financial position and it should only make a trade sale to business people with substantial financial resources and extensive industry experience.

The preferred strategy was to have a partial sharemarket float…


Brian Gaynor

Executive Director

Brian is Chairman of Milford’s Investment Committee and head of Milford’s portfolio management and investment analysis activities. Brian is one of New Zealand’s most experienced and well-known investment analysts. Brian’s career includes roles as a Partner and Head of Research at stockbrokers Jarden & Co, a member of the New Zealand Stock Exchange, Chairman of the New Zealand Society of Investment Analysts and Chairman of the Asian Securities Analysts Council. Brian is Portfolio Manager of the Milford Active Growth Fund and the Milford KiwiSaver Plan Active Growth Fund.

NBR: Precinct Properties boosts full-year earnings on acquisitions, higher rental income

Tina Morrison | Tuesday August 20, 2013

Precinct Properties New Zealand, formerly known as AMP NZ Office, boosted full-year net operating income 14 percent as new buildings and higher occupancy levels increased rents.

Operating profit, which excludes some non-cash items and is used as the basis of dividend policy, increased to $58.3 million in the 12 months ended June 30, from $51.3 million a year earlier, the Auckland-based company said in a statement. Gross rental income rose 16 percent to $147.7 million.

Precinct has been securing new properties for its portfolio where it expects to be able to add value. It paid $50.4 million for Wellington’s Bowen Campus in 2012, and in the past financial year spent $90 million to buy the Downtown Shopping Centre and a further $103 million on the adjoining HSBC House, on Auckland’s central city waterfront.

“The previous three years were a time of steady consolidation and growth but over the last 12 months Precinct has moved to executive its strategy and achieve a new level of growth,” chief executive Scott Pritchard said in the statement. “As the company advances this strategy, it will now look to recycle out of non-core assets with the proceeds matched to development opportunities.”

Shares in Precinct rose 1.5 percent to $1.035, taking their gain this year to 3 percent.

Net operating income of 5.85 cents per share before performance fees is a touch ahead of the company’s forecast for 5.8 cents a share, and ahead of 2012’s 5.14 cents a share. Precinct forecast 2014 earnings of about 6.2 cents per share before fees.

The company will pay a fourth quarter dividend of 1.28 cents a share, taking its 2013 full-year dividend to 5.12 cents, up from 5.04 cents in 2012. Precinct forecast a 2014 dividend of 5.4 cents a share, consistent with its 90 percent payout ratio, and an increase on 2013’s 87.5 percent ratio.

“Following strategic acquisitions, Precinct is well positioned for future growth in earnings,” the company said.

Precinct expects market rental growth in Auckland to increase as vacancies fall while in Wellington the company expects moderate rental growth as clients focus on seismic performance.

The two Auckland acquisitions, along with its ANZ Centre redevelopment, increased bank borrowings 74 percent to $603 million. Interest expense rose 34 percent to $28.2 million, reflecting the Bowen and Downtown Shopping Centre purchases.

Precinct’s gearing ratio rose to 37.3 percent from 27 percent a year earlier although still within its banking covenant of 50 percent. The company’s gearing levels are not expected to increase materially from here, it said.

The company’s occupancy level rose to a four-year high of 97 percent, from 94 percent a year earlier while its weighted average lease term increased to 5.7 years from 5.5 years six months earlier.

Net income more than doubled to $157.5 million from $45.1 million as the company benefited from a $46 million revaluation gain on better rentals.


Precinct Property – AWARD – NZ Herald

For those of you with this in your portfolio, you will be pleased to see they just won an award for their make-over of the ANZ Tower, for more click the link to the NZ Herald below the article…

A $76 million job – the country’s biggest building makeover – last night won the Property Council’s top award.The upgrade of the ANZ Centre in Auckland cost $76 million. Photo / Dean Purcell

Precinct Properties’ upgrade of its ANZ Centre on the corner of Albert, Swanson and Federal Sts was judged the most successful and the most challenging job, beating 78 other finalists.

The top-to-toe refurbishment of the A-grade office tower added considerable value for its owner and tenants and won the Rider Levett Bucknall supreme award.

The project required detailed and innovative planning for the work to be completed without disruption of the day-to-day operations, the judges said.

NZ Herald 5:30 AM Saturday Jun 8, 2013


IPO’s – all that glitters is not gold… Milford Asset Management

Published in Blog, Economy on 29 Apr 2013

While the opposition parties attempt to undermine potentially the largest IPO of the year, the partial sale of Mighty River Power (MRP), there is a list of smaller IPO’s which will not be de-railed by political posturing.  The recent success of market darlings Xero, Diligent, Summerset and A2 Corporation have led to a level of market sentiment not seen since the late 90’s.  While we support IPO’s for growth companies, this flurry of activity brings risks to unsuspecting investors.

We suggest a cautious approach to the impending IPO’s.  Xero spent nearly 17 months below its issue price, Diligent circa 41months and A2 Corporation traded sideways for 7 years!  Many investors, and investment bankers, under estimate the work required to deliver a successful post listing company.  There are nuances around business models and market structures which impact on future revenue and earnings growth, which are not effectively dealt with in prospectuses.  Instead, business models are often labelled or compared to other listed companies for brevity.

The clearest example of this is labelling a business as having a Software as a Service (or SaaS) business model to boost valuation.  This is the business model that Xero utilises.  It is then easy to ‘compare’ the relative valuations of US based SaaS businesses (and Xero) to come up with a high valuation for the company being listed.  We consider this approach to be wrong and misleading.

The key concepts to analysing a prospective IPO remain the same as any business we look at, care must be taken not to be influenced by labels.  The key points remain;

  • Is the management and board motivated and able to hit future growth targets?
  • How big is the market and how fast is it growing?
  • What competitive advantage does the company have?  Is this demonstrable through either rapid market share growth or a strong price position?  Will this lead to strong EBIT margins for the business in the long term?
  • How expensive is growth to deliver and how ‘lumpy’ is the company’s sales profile?
  • Is there the risk of a current or new technology that could completely overtake the product or service that is provided by the business?
  • Is the business being valued fairly?  The valuation should give both current and new shareholders the ability to profit should the business fail to achieve its prospective revenues and profits, with good upside if it meets its targets.

Investors will be well served to come up with their own views on the questions above, rather than to rely on the information provided by the prospectuses or by individuals promoting the new issues.  We will be.

Brooke Bone

Senior Equity Analyst

Special Situations

Mighty River Power – Milford Asset Management Opinion

Weighing up pros and cons of Mighty River Power prospectus

Published in Blog, Brian Gaynor’s NZ Herald Articles, Economy on 06 Apr 2013

The long-awaited Mighty River Power prospectus is finally available.

The 256-page document should contain enough information for everyone, from those wanting just a brief overview of the risks associated with investing in the company to analysts who want detailed financial information.

The offer opens on Monday, April 15 and all New Zealand applications are guaranteed a minimum of $2000 worth of shares although they can apply for a minimum $1000 amount of shares.

A New Zealand applicant is an individual, company, trust or any other legal entity that is incorporated in the country and has a valid New Zealand IRD number, bank account and address.

The applicant must also confirm it is not acting for the account or benefit of a person in the United States.

Thus investors can apply for shares through any of the entities listed above as long as they meet the IRD, bank account and address criteria.

Every domestic application is guaranteed a minimum of $2000 worth of shares and if the issue is over subscribed, and applications have to be scaled back, investors who pre-registered “will receive an amount of shares which is 25 per cent higher than a New Zealand applicant who applied for the same amount of shares but did not pre-register”.

One of the more important features of the issue is that retail applicants must apply for a dollar value of shares rather than a specific number of shares because the IPO price won’t be set until after the retail offer closes on May 3.

These applications can be made online, through an application form contained in the prospectus or by way of a broker firm offer.

The bookbuild is a process whereby institutions may bid for shares at specific prices either above, within or below the prospectus price range of $2.35 to $2.80 a share.

The Crown sets the IPO price after the completion of the bookbuild.

There is no assurance that participants in the institutional bookbuild will receive any shares or the number of shares they bid for. Institutional allocations will be influenced by factors “such as whether the participant is a New Zealand institution managing significant investments on behalf of New Zealanders (including KiwiSaver or superannuation) or a participant representing collective interests such as Maori trusts”.

Retail applicants will be allocated shares by dividing the dollar value of shares applied for, subject to scaling, by the IPO price.

This process is a clear disadvantage to retail applications because they do not know the IPO price when they apply for, and pay for, their shares and the top indicative price of $2.80 a share is relatively expensive.

As far as Contact Energy’s 1999 IPO was concerned the IPO price was $3.10 a share, compared with the indicative range of $2.40 to $3, because of the overwhelming demand for shares.

The same could happen with Mighty River Power but retail investors cannot withdraw their application if the final price is higher than they want to pay.

Another important feature of the Mighty River Power issue is the loyalty bonus share scheme whereby all New Zealand applicants – individuals, companies and trusts – will receive one bonus share for every 25 shares issued under the IPO.

The bonus shares will only apply to shares continuously held from the IPO to May 14, 2015 and is limited to a maximum of 200 bonus shares.

These bonus shares will come from the Crown and will not be new shares issued by the company.

A table on page 224 of the prospectus illustrates the benefits of the loyalty bonus share scheme which may encourage investors to hold their shares for the required two years.

However, the decision to hold or sell will ultimately be determined by the company’s profitability, dividend yield and industry issues, including the potential closure of the Tiwai Pt aluminium smelter.

The Tiwai Pt issue is covered under the “What are the Risks?” section on page 87 of the prospectus.

The aluminium smelter is owned and operated by New Zealand Aluminium Smelters (NZAS), which is majority-owned by Rio Tinto.

The Mighty River Power prospectus has this to say about the Bluff smelter: “[It is] the largest single user of electricity in New Zealand accounting for 13 per cent of electricity demand in 2012. NZAS reduced its electricity consumption in 2012 by 9 per cent and announced in August 2012 that low prices for aluminium produced at Tiwai Pt smelter were causing it to review its operations and to work with its key suppliers and stakeholders to reduce costs.”

It concludes: “If NZAS makes a further significant reduction in electricity consumption, whether as a result of the closure of the smelter following any review or for any other reason, the resultant drop in demand could lead to sustained reduction in electricity prices in general.”

Tiwai Pt is a crucial issue for the electricity generation industry but it is important to note the current three-year contract between Meridian Energy and NZAS does not expire until January 1, 2016.

NZAS then has the option to ramp down production over 2.5 years to close the smelter by June 30, 2018.

Thus NZAS must pay for its contracted electricity up to January 2016 and must continue to pay for electricity, albeit on a reducing scale, up to June 2018 if it decided to give the 2.5 years ramp-down notice.

These contractual electricity purchase obligations remain even if NZAS decides to close the smelter at an earlier date.

The take or pay agreement between NZAS and Meridian Energy gives the electricity generation industry time to adjust to the potential closure of the Tiwai Pt smelter.

Mighty River Power is forecasting net earnings after tax of $94.8 million for the June 2013 year and $160.4 million for the June 2014 year. This compares with net earnings of $67.7 million for the 2011/12 year.

This places the company on a prospective 2014 price/earnings (P/E) ratio of between 20.5 and 24.4 for the 2013/14 year at the indicative IPO price of between $2.35 and $2.80 a share. This compares with prospective P/E ratios of 19 for Contact Energy and 18.9 for TrustPower for the 2014 year.

However, the prospective dividend yield is probably more important to many investors because New Zealanders currently have $112.7 billion in bank deposits and the major banks are offering gross interest rates of no more than 4.2 per cent on one year term deposits.

Mighty River Power is forecasting a gross dividend yield between 7.1 per cent and 6 per cent for the June 2013 year and between 7.7 per cent and 6.4 per cent for the following year at the indicative IPO price range.

These figures are directly comparable with the dividend yield column in the Business Herald share table and gross bank interest rates of 4.2 per cent for one year term deposits.

By comparison, Contact Energy has forecast gross dividend yields of 5.9 per cent and 6.6 per cent, and TrustPower of 7.3 per cent and 7.3 per cent, for the 2013 and 2014 years respectively.

Although Mighty River Power’s prospective gross yields are higher than bank deposits it is important to remember that shares are far more risky than interest-bearing deposits at the four major trading banks.

With this in mind it is extremely important that all potential Mighty River Power investors read the “What are the risks?” section on pages 83 to 94 of the company’s prospectus.

Shares are risky and Contact Energy shareholders have had their fair share of ups and downs, even though the company has delivered total returns (capital plus dividends) in excess of 10 per cent per annum since listing in 1999.

Important dates
Retail offer opens Monday, April 15
Retail offer closes Friday, May 3
Institutional bookbuild closes Wednesday, May 8
IPO price announced Thursday, May 9
Listing on the NZX & ASX Friday, May 10
Important features
Indicative price range $2.35 to $3.80 a share
Shares on offer Up to 686,000,000 shares
Crown retains At least 51 per cent
Prospective P/E
June 2013 year 34.7 to 41.4
June 2014 year 20.5 to 24.4
Gross dividend yield
June 2013 year 6.0% to 7.1%
June 2014 year 6.4% to 7.7%

Brian Gaynor

Portfolio Manager

Disclosure of Interest: Milford Asset Management will be participating in the Mighty River Power bookbuild process. Milford holds Contact Energy and TrustPower shares on behalf of clients.

Will Bonds Crash? Investment Insight from AMP

stone tower

For the last few years the big worry has been that the global economy would slide back into recession. Cash and sovereign bonds in “safe countries” were seen as safe havens. With those fears fading, a new worry is that bond yields, after falling for years, will shoot higher as central banks start to tighten and investors switch to shares – causing losses for bonds and threatening other assets. This note looks at the key risks for bonds: are they in a bubble? What is the risk of a 1994 style bond crash?

Read on in the latest Investment Insight from AMP Capital’s investment team.


Might River Power listing underway – Milford Asset Management

Published on 04 Mar 2013

The Government has kick started the Mighty River Power listing after deciding to go ahead with an “Order in Council” at this afternoons session.  The Order in Council process will result in Mighty River ceasing to be a State Owned Enterprise so that it can be partially sold and listed.

In a press release the Government reiterated that New Zealanders will be at the front of the queue and that applications for shares up to $2,000 will not be scaled.  The release also confirmed a secondary listing on the ASX and a loyalty bonus for New Zealand retail investors.

A loyalty bonus will result in additional shares for retail investors who hold onto their shares for a minimum period, likely one to three years.  This mechanism was used in the 2010 Queensland Rail listing whereby Queensland investors received one additional share for every 15 held if they did not sell in the first year.

A pre-registration period will be launched tomorrow that will allow New Zealanders to register their interest and receive a copy of the offer document upon its release.  This will only be available to New Zealanders with an IRD number, New Zealand bank account and a New Zealand address.  Investors interested in applying for Mighty River Power shares should register their interest on the website to be launched tomorrow.

The offer document is expected to be lodged in the next few weeks and one week following this the offer period may begin and will last for three weeks.  The book build process will follow this where final pricing and allocation of shares will be determined.

Mighty River recently reported a strong half year result with a 31% increase in underlying earnings.  Heading into the listing analysts will be looking at the impact of the North Island drought on full year earnings, as well as what impact the possible closure of the Tiwai smelter may have on growth prospects.  Despite these short term issues Mighty River Power is a well managed and operated Company and will give many New Zealanders a chance to gain equity market exposure.

William Curtayne

Senior Analyst

Disclosure of interest: Milford may subscribe for Mighty River Power shares following a review of the offer document which is yet to be released.