Latest / Best of Business / Michael Luke: Milford Asset Management expert on the market reactions to the Government's energy announcement

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Michael Luke: Milford Asset Management expert on the market reactions to the Government's energy announcement · Best of Business

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  Speaker 1: You're listening to a podcast from News Talk sed be
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  Speaker 2: Sounds like we may well be actually looking at the
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  Speaker 2: possibility of building another coal fired power plant to replace Huntley,
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  Speaker 2: because it's going to die in the next five to
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  Speaker 2: ten years. Seventeen past six Michael Luke, Milford Asset Management
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  Speaker 2: is with us A Michael Michael, are you there?
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  Speaker 3: Yep, Hey, thanks Jane good.
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  Speaker 2: Oh, I'm well, thank you and pleased to be able
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  Speaker 2: to hear you now. Michael took me through this. How
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  Speaker 2: the market react to the government's electricity review.
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  Speaker 3: Well, the share prices of our electricity companies rerected positively today.
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  Speaker 3: Meridian rose the most, up nearly five percent, while Contact
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  Speaker 3: Metcrean Genesis were up about one or two percent. Now,
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  Speaker 3: that reflects a bit of a relief really in my view,
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  Speaker 3: where there had been a bit of uncertainly hanging over
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  Speaker 3: the sector for the past six months as investors waited
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  Speaker 3: for the outcome of the Frontier Report and the government review.
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  Speaker 3: I think investors are broadly supportive of initiatives aimed at
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  Speaker 3: increasing and speeding up investment and energy. However, there had
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  Speaker 3: been a bit of concern around the risk and the
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  Speaker 3: impact of a major intervention like separation, which had seen
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  Speaker 3: some caution from both international and domestic investors. Meridian was
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  Speaker 3: the strongest, reflecting two things in my view. Firstly, an
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  Speaker 3: energy import facility could reduce altricity prices during dry years,
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  Speaker 3: which did impact Meridan a lot last year. And then secondly,
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  Speaker 3: as the largest electricity company, Meridian has traditionally had the
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  Speaker 3: most overseas ownership, so it was likely impacted the most
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  Speaker 3: by international investor concerns around the government government review, which
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  Speaker 3: have now eased.
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  Speaker 2: What did you make of the government allowing the gentailers
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  Speaker 2: to raise capital, Well, well.
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  Speaker 3: I don't think the government had ever explicitly said they
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  Speaker 3: couldn't raise capital. There has definitely been a bit of
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  Speaker 3: a perception in the market over the last decade as
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  Speaker 3: the gintailers couldn't raise capital without a commitment from the government,
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  Speaker 3: as they couldn't delete their fifty one percent stakes. Now
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  Speaker 3: I'm not sure it's been a major constraint, but it
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  Speaker 3: would have been our constraints because the gintailers have to
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  Speaker 3: balance their development pipelines, their debt and their dividend policies
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  Speaker 3: and if you have uncertainty around the ability to raise equity,
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  Speaker 3: that does mean you have to be a bit more
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  Speaker 3: conservative in those other settings. I think that was probably
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  Speaker 3: particularly hard to manage when there was a risk of
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  Speaker 3: the ty smelter closing a few years ago, which would
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  Speaker 3: have impacted the sector. And I think Contact Energy has
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  Speaker 3: actually had a bit of an advantage here where Contact
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  Speaker 3: is the only listed gin tailor without government ownership. They've
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  Speaker 3: been able to be a bit more aggressive maybe in
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  Speaker 3: their development activity, and that included raising four hundred mili
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  Speaker 3: from investors back in twenty twenty one to build a
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  Speaker 3: geofirm or power station. So investors have been happy to
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  Speaker 3: support raisers to fund good venewable energy projects and overall,
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  Speaker 3: I think it does a bit of flexibility on how
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  Speaker 3: these autisted companies fund their development pipelines going forward, which
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  Speaker 3: is welcome.
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  Speaker 1: Yeah.
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  Speaker 2: Do you think investors now have more certainty?
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  Speaker 3: Well, I think investors now know what to expect from
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  Speaker 3: the current coalition, but that would change if there was
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  Speaker 3: a change in government. There are also still questions on
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  Speaker 3: how the industry solves our gas shortage as well as
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  Speaker 3: dry year risk, so investors will continue to watch the
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  Speaker 3: gas market and the LERG terminal procurement process. Ultimately, I
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  Speaker 3: think it's fair to say there is more sendency for now,
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  Speaker 3: but investors could still be cautious next year heading into
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  Speaker 3: the election.
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  Speaker 2: Yeah, and hey Michael, thanks as always Michael Luke Wilford
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  Speaker 2: ASSEIDT Management.
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