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).

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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Z Energy<br>Road End Looking Increasingly Attractive</h2>
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<p><strong>NEUTRAL</strong></p>
<p>Following the announcement that Z Energy's (ZEL) Board supported&nbsp;Ampol's&nbsp;(ALD) takeover bid,&nbsp;ZEL's&nbsp;share price has been steadily declining to the point where investors will now likely receive an&nbsp;annualised&nbsp;return above 16%, assuming the takeover completes before the end of July 2022. However, the decline in the share price suggests the chance of the deal completing has steadily fallen from a high of ~85% in the middle of October 2021 to ~70% today. In our view, the only substantive risk to the transaction is ALD being unable to sell Gull, as we expect the Commerce Commission (ComCom)&nbsp;and Overseas Investment Office (OIO) to clear the transaction should that happen. Whilst ZEL is looking more attractive, there is sufficient uncertainty in the takeover outcome that we retain our NEUTRAL rating.</p>
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<h3>Investors will receive increasingly attractive&nbsp;annualised&nbsp;return if the takeover completes</h3>
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<p>Assuming&nbsp;ALD's&nbsp;ZEL takeover&nbsp;completes, the&nbsp;annualised&nbsp;return will be at least 13.7%, and could be as high as 27.4% if the deal completes on 31 March 2022 (albeit that is unlikely). Our base view is the deal will settle towards&nbsp;the middle of the year, between 31 May 2022 and 30 June 2022, implying an&nbsp;annualised&nbsp;return of between 17.5% and 19.6%. However, there is no guarantee that the deal completes with&nbsp;the market&nbsp;suggesting&nbsp;the risk of the deal falling over is rising.</p>
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<h3>Market currently implying a ~70% chance the deal will go through</h3>
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<p>With&nbsp;ZEL's&nbsp;share price sliding from above NZ$3.60&nbsp;immediately after the deal was announced in early October 2021 to below NZ$3.50&nbsp;currently, the market is suggesting an increased risk of the deal not completing. Our analysis indicates the expectation the takeover will complete has fallen from a high of ~85% to ~70%. We note that this analysis is sensitive to&nbsp;ZEL's&nbsp;share price if the deal falls over (we assume a little under NZ$3.00) and the desired return if the deal does complete, but the key point is the trend. Our base view is that the transaction successfully completes, and we have not seen anything that suggests otherwise (other than the share price decline).</p>
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<h3>No heat in&nbsp;ComCom&nbsp;clearance process with only one submission of note</h3>
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<p>There was only one substantive submission on the&nbsp;ComCom's&nbsp;Statement of Preliminary Issues, which came from Mobil. Its key issues are around 1) ALD continuing to supply Gull post-takeover, wanting the&nbsp;ComCom&nbsp;to ensure there is no long-term supply agreement negotiated prior to the sale of Gull, and 2) arguing any shares that ALD retains post-IPO (if that is the route ALD goes&nbsp;down to dispose of Gull) ideally should not have voting rights and&nbsp;be sold&nbsp;relatively quickly. The lack of interest from the remainder of the sector, or entities such as the Automobile Association, highlights there is&nbsp;little apparent concern with the&nbsp;takeover. In our view, the sale of Gull remains the key issue and&nbsp;factor that will impact on the timing of the ZEL takeover and whether it&nbsp;is ultimately successful. The&nbsp;ComCom&nbsp;still indicates it will reach a decision by 18 January 2022, although we expect that&nbsp;timeframe&nbsp;will be extended.</p>
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Z Energy Road End Looking Increasingly Attractive

NEUTRAL
Following the announcement that Z Energy's (ZEL) Board supported&nbsp;Ampol's&nbsp;(ALD) takeover bid,&nbsp;ZEL's&nbsp;share price has been steadily declining to the point where investors will now likely receive an&nbsp;annualised&nbsp;return above 16%, assuming the takeover completes before the end of July 2022. However, the decline in the share price suggests the chance of the deal completing has steadily fallen from a high of ~85% in the middle of October 2021 to ~70% today. In our view, the only substantive risk to the transaction is ALD being unable to sell Gull, as we expect the Commerce Commission (ComCom)&nbsp;and Overseas Investment Office (OIO) to clear the transaction should that happen. Whilst ZEL is looking more attractive, there is sufficient uncertainty in the takeover outcome that we retain our NEUTRAL rating.


Investors will receive increasingly attractive&nbsp;annualised&nbsp;return if the takeover completes


Assuming&nbsp;ALD's&nbsp;ZEL takeover&nbsp;completes, the&nbsp;annualised&nbsp;return will be at least 13.7%, and could be as high as 27.4% if the deal completes on 31 March 2022 (albeit that is unlikely). Our base view is the deal will settle towards&nbsp;the middle of the year, between 31 May 2022 and 30 June 2022, implying an&nbsp;annualised&nbsp;return of between 17.5% and 19.6%. However, there is no guarantee that the deal completes with&nbsp;the market&nbsp;suggesting&nbsp;the risk of the deal falling over is rising.


Market currently implying a ~70% chance the deal will go through


With&nbsp;ZEL's&nbsp;share price sliding from above NZ$3.60&nbsp;immediately after the deal was announced in early October 2021 to below NZ$3.50&nbsp;currently, the market is suggesting an increased risk of the deal not completing. Our analysis indicates the expectation the takeover will complete has fallen from a high of ~85% to ~70%. We note that this analysis is sensitive to&nbsp;ZEL's&nbsp;share price if the deal falls over (we assume a little under NZ$3.00) and the desired return if the deal does complete, but the key point is the trend. Our base view is that the transaction successfully completes, and we have not seen anything that suggests otherwise (other than the share price decline).


No heat in&nbsp;ComCom&nbsp;clearance process with only one submission of note


There was only one substantive submission on the&nbsp;ComCom's&nbsp;Statement of Preliminary Issues, which came from Mobil. Its key issues are around 1) ALD continuing to supply Gull post-takeover, wanting the&nbsp;ComCom&nbsp;to ensure there is no long-term supply agreement negotiated prior to the sale of Gull, and 2) arguing any shares that ALD retains post-IPO (if that is the route ALD goes&nbsp;down to dispose of Gull) ideally should not have voting rights and&nbsp;be sold&nbsp;relatively quickly. The lack of interest from the remainder of the sector, or entities such as the Automobile Association, highlights there is&nbsp;little apparent concern with the&nbsp;takeover. In our view, the sale of Gull remains the key issue and&nbsp;factor that will impact on the timing of the ZEL takeover and whether it&nbsp;is ultimately successful. The&nbsp;ComCom&nbsp;still indicates it will reach a decision by 18 January 2022, although we expect that&nbsp;timeframe&nbsp;will be extended.


Z Energy: Road End Looking Increasingly Attractive

Z Energy Ltd

Z Energy: Road End Looking Increasingly Attractive