Meridian Energy shares could get a boost by the National victory in the polls

Meridian Energy and other power company shares could get a boost if a National victory in the next election looks more certain, an analyst says.

Another analyst warns potential investors in Meridian that power companies face a range of uncertainties and volatile profits, and were not necessarily steady earners.

However, a reduction in demand for power from the Tiwai Pt aluminium smelter in Southland could actually see Meridian profits improve because it could get higher prices in the wholesale market than the deeply discounted price it now gets from the smelter.

In two of the latest political polls, Labour is closing the gap on National and a Labour/Greens government looks odds on in both.

The risk of a future Labour/Greens government imposing new controls on the electricity sector, with a "single buyer" model, would hit Meridian especially hard, but analysts believe there is a relatively low risk of it actually happening.

Woodward Partners analyst Nick Lewis said the political polls and Nationals chance of being re-elected next year would have a direct impact on listed power company prices.

"Public opinion will drive the stock prices of the listed power companies and Meridian, once it goes public," Lewis said yesterday.

If there was a consistent theme of National being re-elected "then I would expect [power company] prices to start to creep up again," he said. But if Labour gained in the polls, prices were likely to fall.

There are now five independent analysts' reports on the planned float of Meridian Energy, with valuation estimates ranging from $1.70 (TDB Advisory) to $1.81 from Woodward Partners. The Government's indicative price range is $1.50 to $1.80 a share, with retail mum and dad investors getting a price cap of $1.60 a share.

TDB Advisory analyst Daniel Foote gave a midpoint valuation of about $1.70 a share for Meridian, in a range from $1.50 to $1.90.

But he stressed that investors should not see Meridian and other power companies as utilities with "stable, predictable earnings".

"That is not necessarily the case. They face a great deal of uncertainty around water, fuel prices, electricity market prices, political risks and competitive behaviour," Foote said. That meant volatile earnings.

Edison Investment Research rated Meridian a "cash cow" and gave a fair value range of between $1.70 and $1.86 a share, but warned that the "major downside risk" was the Labour/Greens power policy.

If that policy was brought in completely that could slash the value of Meridian by up to 70 cents a share.

Edison also said the electricity sector could effectively sue for peace in the face of a Labour/Greens government.

Edison analyst Bruce McKay said the planned regulation would have a significant impact, so generators, retailers and lines companies would have a big incentive to negotiate an outcome that did not hit them as severely as proposed.