Trustpower's Economic Moat Upgraded to Narrow; Fair Value Estimate Unchanged

We are upgrading Trustpower's economic moat rating to narrow from none. The new narrow economic moat designation recognises the structural competitive advantages New Zealand's major energy generators possess. We believe that, like other electricity generators, Trustpower's economic moat is based on efficient scale, reflecting New Zealand's small population base and limited growth prospects. We believe new entrants would find the New Zealand power market unappealing. In addition, the five major players have taken up the vast majority of low-cost geothermal as well as hydro assets and, as such, new entrants would have to make do with higher-cost thermal or unreliable wind generation. As we see it, this would make the returns unattractive for newcomers.