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Will Mighty River’s share price sink or swim?

by Tony Ryburn, Executive Chairman, Sharesight | Apr 9th 2013

The NZ Government’s asset sales programme has generated heated debate much of which has been politically driven and ill-informed. But whatever side of the fence you are on, the bottom line is that it is going to happen at least for Mighty River Power which is the first cab off the rank. So as an investor are you going to dip your toe in the water or do you think investing in Mighty River will leave you up the creek without a paddle?

Rather than regurgitating all the factors that might impact on Mighty River’s share price after it floats I thought it might be interesting to look at how previous Government asset sales have performed for investors over the long term. Three that come to mind are Auckland Airport, Contact Energy and Vector. Recording these stocks in Sharesight on their IPO dates reveals some interesting information.

Contact Energy is obviously the most relevant to Mighty River. It listed in May 1999 and since then has produced an electrifying performance with an annualised return (including capital gains and dividends) of just under 15%. However it has suffered a power cut since September 2010 producing a total return over this period of minus 2.6%.

On the other hand Vector, being a lines company rather than a power producer, has seen its share price become tangled in the wires and it is currently below its August 2005 listing price of $3.00. But it has still produced an overall return of 5.6% courtesy of strong regular dividend payments.

Auckland Airport has been the high flyer of the trio with an overall performance of nearly 22% p.a. since it became airborne in July 1998. It is obviously in a different industry and has some unique characteristics, but it does show that previously owned Government assets can perform for investors and are unlikely to sell you down the river.