25 Mar 2014

Treasury distances brokers from float

7:02 am on 25 March 2014

The Treasury wants major retail sharebrokers to be free to publish research on Genesis Energy and says that's a major reason for not involving them in managing the float.

As well, the structure of the Genesis float meant all brokers could participate in bidding for shares at different price points, The Treasury director of commercial operations Chris White said.

Both Forsyth Barr and Craigs Investment Partners were both involved in the floats of Mighty River Power and Meridian Energy last year.

Genesis Energy's Tekapo B Power Station.

Genesis Energy's Tekapo B Power Station. Photo: GENESIS ENERGY

Forsyth Barr managing director Neil Paviour-Smith said while it had been keen to be involved in the Mighty River Power and Meridian floats, it had been frustrating not being able to provide clients with research because of the blackout rules.

"The reason we're not involved is that there was no real benefit to our clients or ourselves for being involved," Mr Paviour-Smith said.

"In fact, the restrictions on availing research and some of the other general marketing restrictions meant that it was probably more of a disadvantage in terms of us being able to provide research and advice.

"We've confident that we can try to avail stock for our clients who are interested in Genesis just as well as if we had been involved."

Forsyth Barr analyst Andrew Harvey-Green said the Genesis float was all about the dividend, with the gross dividend yield expected to be between 13.5 and 16.5 percent.

Mr Harvey-Green said the yield was impressive and could not be ignored but he believed it would be a challenge for Genesis to grow it further.

Craigs head of institutional research Grant Swanepoel said at the top end of their indicative range, their dividend yield on the growth front was 13.5 percent, while net after full imputation was 10.8 percent.

"That appears like a really good yield, particularly when you consider the sector is trading on about a 7 percent net yield," Mr Swanepoel said.

That was because Genesis had a "great little asset in Kupe", of which it owned 31 percent.

"That has very little capital expenditure associated with it and is actually gushing cash, and should continue to deliver cash until about 2026-2027," he said.

That meant the dividend would be higher than the sector for many years, which made it attractive to investors.

Mr Swanepoel said if Genesis shares were priced at $1.65, that would bring it into line with the values of the other listed electricity companies - which he believed the market had undervalued.