New Zealand Professional Investment Services Firm, Forsyth Barr

Forsyth Barr

New Zealand Professional Investment Services Firm

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

Equity Bottom-Up

Channel Infrastructure NZ Ltd / Equity Bottom-Up

<h2>The Good Oil</h2>
September 2019 — Improved GRM Outlook
August 2019 proved to be a positive month for Refining NZ (NZR) despite reporting a soft, albeit expected 1H19 result. We estimate NZR’s August 2019 gross refining margin (GRM) increased +3% from July’s estimate but most importantly our estimated GRM remains well above supressed levels recorded earlier in the year. Vehicle traffic growth remains positive on a 12-month rolling basis but growth continues to decline for light vehicle traffic while heavy vehicle traffic growth has flat-lined.
Refining margins remain healthy
We estimate NZR’s August 2019 GRM was US$8.06/barrel, increasing +3% on our previous month’s estimate. More importantly, NZR’s GRM remains well above the suppressed levels reported earlier in the year of below ~US$5.50/barrel. We estimate NZR’s GRM for the May/June bi-monthly period will be US$7.92/barrel with a processing fee of NZ$59.9m. NZR will release its GRM for the July/August period in September 2019.
NZR released a soft 1H19 result as expected with 1H19 NPAT of -NZ$4m. However, the outlook is more positive with the shipping sector getting closer to implementing Marpol, and NZR guiding to lower capex than anticipated. We have increased our target price +33cps to $2.15 and upgraded our rating to NEUTRAL.&nbsp;Capitalising Lower Capex&nbsp;(22/08/19) should be viewed for more information.
Light vehicle traffic growth continues to slow
Heavy vehicle traffic data increased strongly in July, up +5.1% on the pcp after a soft June. Light vehicle traffic also increased on the pcp but not quite as strongly, up +1.0%. On a 12-month rolling basis heavy vehicle traffic has flat-lined at +2.4% while light vehicle traffic growth also remains positive at +2.1%, but growth has been trending downwards for 15-months.
Provisional importer margins trend in opposite directions
Provisional petrol importer margins trended strongly upwards in August 2019 while diesel importer margins declined slightly. Diesel importer margins decreased -1% in August to average 32.6cpl, inline with margins in the pcp. Petrol importer margins increased +10% on the previous month to average 29.3cpl in August, rebounding from a soft prior month.
Figure 1. Summary company valuation metrics
<table class="table table-striped">
<thead>
<tr>
<td></td>
<td></td>
<td>
Target
</td>
<td>
Target
</td>
<td></td>
<td colspan="3">
1 year forward
</td>
</tr>
</thead>
<tbody>
<tr>
<td>
Company
</td>
<td>
Price
</td>
<td>
Price
</td>
<td>
Return
</td>
<td>
Rating
</td>
<td>
EV/EBITDA (x)
</td>
<td>
PE (x)
</td>
<td>
Gr Yld
</td>
</tr>
<tr>
<td>
NZR
</td>
<td>
2.05
</td>
<td>
2.15
</td>
<td>
10.2%
</td>
<td>
NEUTRAL
</td>
<td>
4.5
</td>
<td>
11.2
</td>
<td>
7.4
</td>
</tr>
<tr>
<td>
ZEL
</td>
<td>
6.34
</td>
<td>
6.50
</td>
<td>
10.6%
</td>
<td>
OUTPERFORM
</td>
<td>
7.1
</td>
<td>
12.0
</td>
<td>
11.2
</td>
</tr>
</tbody>
</table>
Source: Forsyth Barr analysis
<div class="content-highlight">
Investment View
We maintain our OUTPERFORM rating on ZEL with the company trading on benign multiples and a healthy dividend yield. Our NZR rating is NEUTRAL due to an improving refining margin outlook coupled with lower capex guidance.
</div>
&nbsp;Andrew Harvey-Green
andrew.harvey-green@forsythbarr.co.nz
+64 4 495 8185
&nbsp;Adam Lourie
adam.lourie@forsythbarr.co.nz
+64 4 914 2273

The Good Oil
September 2019 — Improved GRM Outlook
August 2019 proved to be a positive month for Refining NZ (NZR) despite reporting a soft, albeit expected 1H19 result. We estimate NZR’s August 2019 gross refining margin (GRM) increased +3% from July’s estimate but most importantly our estimated GRM remains well above supressed levels recorded earlier in the year. Vehicle traffic growth remains positive on a 12-month rolling basis but growth continues to decline for light vehicle traffic while heavy vehicle traffic growth has flat-lined.
Refining margins remain healthy
We estimate NZR’s August 2019 GRM was US$8.06/barrel, increasing +3% on our previous month’s estimate. More importantly, NZR’s GRM remains well above the suppressed levels reported earlier in the year of below ~US$5.50/barrel. We estimate NZR’s GRM for the May/June bi-monthly period will be US$7.92/barrel with a processing fee of NZ$59.9m. NZR will release its GRM for the July/August period in September 2019.
NZR released a soft 1H19 result as expected with 1H19 NPAT of -NZ$4m. However, the outlook is more positive with the shipping sector getting closer to implementing Marpol, and NZR guiding to lower capex than anticipated. We have increased our target price +33cps to $2.15 and upgraded our rating to NEUTRAL.&nbsp;Capitalising Lower Capex&nbsp;(22/08/19) should be viewed for more information.
Light vehicle traffic growth continues to slow
Heavy vehicle traffic data increased strongly in July, up +5.1% on the pcp after a soft June. Light vehicle traffic also increased on the pcp but not quite as strongly, up +1.0%. On a 12-month rolling basis heavy vehicle traffic has flat-lined at +2.4% while light vehicle traffic growth also remains positive at +2.1%, but growth has been trending downwards for 15-months.
Provisional importer margins trend in opposite directions
Provisional petrol importer margins trended strongly upwards in August 2019 while diesel importer margins declined slightly. Diesel importer margins decreased -1% in August to average 32.6cpl, inline with margins in the pcp. Petrol importer margins increased +10% on the previous month to average 29.3cpl in August, rebounding from a soft prior month.
Figure 1. Summary company valuation metrics






Target


Target



1 year forward






Company


Price


Price


Return


Rating


EV/EBITDA (x)


PE (x)


Gr Yld




NZR


2.05


2.15


10.2%


NEUTRAL


4.5


11.2


7.4




ZEL


6.34


6.50


10.6%


OUTPERFORM


7.1


12.0


11.2




Source: Forsyth Barr analysis

Investment View
We maintain our OUTPERFORM rating on ZEL with the company trading on benign multiples and a healthy dividend yield. Our NZR rating is NEUTRAL due to an improving refining margin outlook coupled with lower capex guidance.

&nbsp;Andrew Harvey-Green
andrew.harvey-green@forsythbarr.co.nz
+64 4 495 8185
&nbsp;Adam Lourie
adam.lourie@forsythbarr.co.nz
+64 4 914 2273

The Good Oil: September 2019 — Improved GRM Outlook

New Zealand

Channel Infrastructure NZ Limited operates a fuel infrastructure company. The Company owns and operates a petroleum pipeline from the refinery to a terminal at Marsden Point, in Northland. Channel Infrastructure produces motor gasoline, automotive and diesel fuels, aviation jet fuel, light and heavy fuel oils, and bitumen.

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Channel Infrastructure NZ Ltd (CHI NZ)

The Good Oil: September 2019 — Improved GRM Outlook

The Good Oil September 2019 — Improved GRM Outlook August 2019 proved to be a positive month for Refining NZ (NZR) despite reporting a soft, albeit...

Forsyth Barr

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