New Zealand Professional Investment Services Firm

Forsyth Barr

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.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Z Energy<br>Coming to the End of the Road — 1H22 Preview</h2>
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<p><strong>NEUTRAL</strong></p>
<p>In what might be Z Energy's (ZEL) last result as a listed company, we are forecasting 1H22 will be another subdued result with COVID-19 once again impacting earnings materially. We are forecasting 1H22 EBITDAF of NZ$107m, up +NZ$10m on 1H21. Compared to 1H21 volumes are stronger and the refinery headwind is not as great but retail margins are lower. In addition, ZEL has made hedging gains on carbon which will benefit the 1H22 result. With ZEL under takeover, we are not expecting any information that will move the share price. NEUTRAL.</p>
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<h3>What we are expecting</h3>
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<li><strong>Result date</strong>:&nbsp;Thursday, 4 November 2021</li>
<li><strong>1H22 EBITDAF</strong>:&nbsp;NZ$107m (vs. NZ$97m in 1H21. Visible Alpha&nbsp;consensus NZ$124m)</li>
<li><strong>1H22 NPAT</strong>:&nbsp;-NZ$1m (vs. -NZ$19m in 1H21. Visible Alpha consensus NZ$18m)</li>
<li><strong>1H22 dividend</strong>:&nbsp;5cps, fully imputed (vs. 0cps 1H21. Visible Alpha consensus 5cps)&nbsp;</li>
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<h3>Earnings uplift expected, but COVID-19 delivers a difficult finish to 1H22</h3>
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<p>1H22 has been another challenging period for ZEL. After a good start to 1H22, COVID-19 has delivered another body blow. Volumes are again down on normalised levels (we are forecasting +9% growth vs. 1H21, but -18% on 1H20)&nbsp;and, unlike 1H21 retail margins,&nbsp;did not surge higher (we are forecasting a 1H22 retail margin of 24.2cpl, vs 25.8cpl in 1H21), so there was no cushioning effect. Rising crude oil prices throughout 1H22 (up +21% over the half) have again been a headwind for retail margins. On the positive side, refinery top up fee floor payments have been ~50% in 1H22 of the&nbsp;1H21 fee floor payments and ZEL has&nbsp;benefitted&nbsp;from carbon hedging gains. Overall, our 1H22 EBITDAF forecast is NZ$107m, up +NZ$10m on 1H21.</p>
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<h3>Dividend forecast of 5cps consistent with&nbsp;Ampol&nbsp;agreement</h3>
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<p>Our 1H22 dividend forecast is 5cps (fully imputed), the same as the dividend allowed under the terms of the&nbsp;Ampol&nbsp;Scheme of Arrangement&nbsp;without impacting the takeover price. In our view, there is&nbsp;little benefit to shareholders in paying a greater dividend than 5cps as it will&nbsp;be deducted from the final takeover price&nbsp;and there will be some tax leakage for many shareholders who cannot fully use imputation credits.&nbsp;</p>
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<h3>FY22 guidance update risked to the downside</h3>
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<p>ZEL's&nbsp;FY22 guidance update is risked to the downside given the ongoing COVID-19&nbsp;lockdowns&nbsp;in the upper North Island and crude oil prices suppressing retail margins. However, refining margins have recovered in recent weeks, closer to average levels and carbon hedging benefits will continue. Our current FY22 BITDAF forecast is NZ$272m vs. guidance of NZ$270m to NZ$310m.</p>
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Z Energy Coming to the End of the Road — 1H22 Preview

NEUTRAL
In what might be Z Energy's (ZEL) last result as a listed company, we are forecasting 1H22 will be another subdued result with COVID-19 once again impacting earnings materially. We are forecasting 1H22 EBITDAF of NZ$107m, up +NZ$10m on 1H21. Compared to 1H21 volumes are stronger and the refinery headwind is not as great but retail margins are lower. In addition, ZEL has made hedging gains on carbon which will benefit the 1H22 result. With ZEL under takeover, we are not expecting any information that will move the share price. NEUTRAL.


What we are expecting



Result date:&nbsp;Thursday, 4 November 2021
1H22 EBITDAF:&nbsp;NZ$107m (vs. NZ$97m in 1H21. Visible Alpha&nbsp;consensus NZ$124m)
1H22 NPAT:&nbsp;-NZ$1m (vs. -NZ$19m in 1H21. Visible Alpha consensus NZ$18m)
1H22 dividend:&nbsp;5cps, fully imputed (vs. 0cps 1H21. Visible Alpha consensus 5cps)&nbsp;



Earnings uplift expected, but COVID-19 delivers a difficult finish to 1H22


1H22 has been another challenging period for ZEL. After a good start to 1H22, COVID-19 has delivered another body blow. Volumes are again down on normalised levels (we are forecasting +9% growth vs. 1H21, but -18% on 1H20)&nbsp;and, unlike 1H21 retail margins,&nbsp;did not surge higher (we are forecasting a 1H22 retail margin of 24.2cpl, vs 25.8cpl in 1H21), so there was no cushioning effect. Rising crude oil prices throughout 1H22 (up +21% over the half) have again been a headwind for retail margins. On the positive side, refinery top up fee floor payments have been ~50% in 1H22 of the&nbsp;1H21 fee floor payments and ZEL has&nbsp;benefitted&nbsp;from carbon hedging gains. Overall, our 1H22 EBITDAF forecast is NZ$107m, up +NZ$10m on 1H21.


Dividend forecast of 5cps consistent with&nbsp;Ampol&nbsp;agreement


Our 1H22 dividend forecast is 5cps (fully imputed), the same as the dividend allowed under the terms of the&nbsp;Ampol&nbsp;Scheme of Arrangement&nbsp;without impacting the takeover price. In our view, there is&nbsp;little benefit to shareholders in paying a greater dividend than 5cps as it will&nbsp;be deducted from the final takeover price&nbsp;and there will be some tax leakage for many shareholders who cannot fully use imputation credits.&nbsp;


FY22 guidance update risked to the downside


ZEL's&nbsp;FY22 guidance update is risked to the downside given the ongoing COVID-19&nbsp;lockdowns&nbsp;in the upper North Island and crude oil prices suppressing retail margins. However, refining margins have recovered in recent weeks, closer to average levels and carbon hedging benefits will continue. Our current FY22 BITDAF forecast is NZ$272m vs. guidance of NZ$270m to NZ$310m.


Z Energy: Coming to the End of the Road — 1H22 Preview

Z Energy Ltd

Z Energy: Coming to the End of the Road — 1H22 Preview