MRP - Don't Sell The Kids
Although there are a few people preaching caution (myself included), I am worried that Mighty River Power (MRP) float might be being oversold. A few people at least, see the MRP float as a license to print money: sell the kids or pawn Granny's brooch - do whatever you can to get in. I have heard stories of people using their credit cards to buy shares (something I have not heard of since 1987).
In my opinion, MRP is not cheap at 20 - 25 times earnings and it is not time to sell the kids, nor borrow on a credit card. To my mind, the risk of owning MRP outweighs this very high cost and I am not going to be a buyer.
MRP will not be any great bargain - I personally will not buy shares as I think in the long-term that the price will turn out to be too high for the risks involved. However, there will probably be enough demand for the shares to do well in the early days.
My last Sunday Star Times column sets out further reasons why I am not a buyer. You can see it at: www.martinhawes.com
From a potential investor's personal point of view, there are a few things to think about:
So do not sell the kids or pawn Granny's brooch to raise funds to buy MRP - and certainly do not borrow on a credit card. This is not a time to join a mad scramble for shares. MRP is not a no-brainer - not for long-term investors, anyway. Think very carefully before you commit your funds - after all, there are a lot of other investments out there which could be better in the long run.
People who have mortgages or some other debt ought not to invest. The returns from MRP after tax and on a risk adjusted basis will not be as good as the interest rate that you will pay. You are better off to put the cash that you have against the mortgage rather than into MRP.
If you are only buying MRP to sell them quickly on listing (this is called "stagging") be ready to pay tax on gains. If you buy shares with the purpose and intent of selling them for a profit, your profits are taxable. My guess is the IRD will be watching.
Be especially careful if you own no other shares. Owning just one company means you are not diversified and the company shares that you own sit all alone and exposed like an orphan.
Watch the company (MRP) and the electricity market very carefully - this is not a company that you buy and then forget. It is quite possible that the wholesale price for electricity decreases over time - especially if Tiwai Point closes. That will not be good for MRP's business.
021 222 2737
Martin Hawes is an Authorised Financial Adviser and is disclosure statement is available free of charge at www.martinhawes.com. This article is of a general nature and is not personalised financial advice.