Meridian shareholders end day $2 billion better off as shares surge 10pc

Thursday, 7 January 2021

Meridian Energy’s share price spiked further on Thursday, with the company’s market value closing above $24 billion.

The value of Meridian Energy soared by more than $2 billion on Thursday as its share price jumped more than 10 per cent on the New Zealand stock exchange.

The company’s shares were 6 per cent up in late afternoon trading before a sudden surge in the final hour of trading saw them close up 87 cents, or 10.2 per cent higher, at $9.40 each.

Meridian’s share price has leapt more than 46 per cent since the start of December. It has overtaken Fisher & Paykel Healthcare as the most valuable company on the NZX, with a market capitalisation of $24b.

Its recent strength prompted a query from the NZX last week, to which company secretary Jason Woolley responded that Meridian was in compliance with its continuous disclosure obligations.

Contact Energy also had an exceptionally strong day on Thursday, with its shares closing up 7.1 per cent at $10.60 each.

There has been speculation that both companies may be benefiting from their inclusion in Standard & Poor's Global Clean Energy Index, with firms in that sector finding more favour with investors following Joe Biden’s election win in the United States.

Uncertainly continues to linger over a temporary reprieve for the Tiwai Point aluminium smelter, which is Meridian’s biggest customer, but rising aluminium prices will be a reason for cheer.

* Lack of competition pushed up prices when Meridian spilled water, Electricity Authority says

* Day of reckoning for Meridian on Tuesday as Electricity Authority readies ruling

Meridian’s stellar performance comes despite lingering uncertainty over the future of its biggest customer, the Tiwai Point aluminium smelter, and the prospect of a large charge to settle an investigation by the Electricity Authority.

A longer-term threat is the Government’s decision to develop a business case for a massive stored hydropower station at Lake Onslow in Otago which an analyst says could tip the electricity market on its head.

The Government and the aluminium smelter's majority owner, Rio Tinto, have yet to announce an expected deal securing the smelter’s temporary reprieve.

But the case for Rio Tinto closing the smelter as previously planned by August may be receding, with aluminium prices climbing above US$2000 a tonne to a two-year high.

US analyst Trading Economics said aluminium futures were expected to remain strong in the coming months on the back of tight supply coupled with strong demand from China and the US.

The amount of compensation and the size of any penalty Meridian may need to pay in relation to a pre-Christmas ruling from the Electricity Authority that it unnecessarily spilt water from its South Island dams in December 2019 remains subject to conjecture.

However, the authority has estimated the “undesirable trading situation” had a $70 million impact on prices in the electricity spot market.

Morningstar said in December that Meridian was tracking better than it expected and growing its retail customer base. But the analysis firm still expected Meridian’s operating profit to fall 10 per cent in the year to June.

Morningstar rates Meridian’s shares as a “sell”, valuing them at only $3.70 each.

Even if the aluminium smelter’s closure was delayed, that would add only about 20c a share to its own valuation, Morningstar suggested.