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>Swings and Roundabouts —&nbsp;3Q22 Op Stats</h2>
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<p><strong>NEUTRAL</strong></p>
<p>With attention firmly fixed on the nearing&nbsp;Ampol&nbsp;(ALD) takeover, Z Energy (ZEL) reported a mixed 3Q22 operating update in which improving retail (temporarily) and refining margins were offset by the stop-start nature of New&nbsp;Zealand's&nbsp;post-lockdown&nbsp;reopening continuing to weigh on core business volumes. Importantly, ZEL reconfirmed FY22 EBITDAF guidance to be between NZ$270m and NZ$310m, albeit the range remains wide. With ZEL currently under takeover and the current share price a reflection of that, we remain NEUTRAL on the stock.</p>
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<h3>What's changed?&nbsp;</h3>
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<li><strong>Earnings</strong>:&nbsp;FY22/FY23/FY24 EBITDAF trimmed -NZ$1m/-NZ$2m/-NZ$2m to NZ$285m/NZ$323m/NZ$325m respectively</li>
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<h3>3Q22 operating statistics mixed with COVID and refinery conversion at the centre</h3>
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<p>ZEL's&nbsp;3Q22&nbsp;was a case of the positives being offset by a few headwinds. The two key positives were 1) MBIE retail margins&nbsp;averaging 39.2cpl, up +21% on&nbsp;2Q22 due to a decline in the crude oil price during the early part of the quarter (which has since reversed). That said, ZEL indicated the tailwind was +1cpl. 2) Refining margins also lifted during 3Q22, allowing ZEL to claw back some of the prior&nbsp;fee floor payments paid to Refining NZ (NZR). Offsetting these positives&nbsp;were weaker retail volumes, down -13% on the prior period, stung by the tail end of the upper North Island&nbsp;lockdowns. In addition, ZEL estimates the conversion of the refinery&nbsp;to an import only model will&nbsp;cost it between -NZ$3m to -NZ$5m,&nbsp;a combination of&nbsp;partly processed crude that will have to exported at a loss as well as one-off closure costs.&nbsp;</p>
<p>We have made minor forecast changes&nbsp;with the positives noted above being broadly offset by the headwinds. In addition, short-term retail margins are currently under pressure, given the sharp rise in crude oil prices since early&nbsp;December 2021.</p>
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<h3>Market more positive on&nbsp;Ampol&nbsp;transaction, ZEL shareholder voting material to be released in coming month</h3>
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<div id="m_697203152904720304i9sqk">
<p>ZEL's share price has recently risen back towards the takeover price of NZ$3.76, indicating the market's increasing confidence that the deal will proceed. We estimate the market is pricing in an 83% probability the deal completes. ZEL shareholder voting materials will likely be released in February 2022, preceding a shareholder vote sometime in late 1QCY22 on whether to approve the sale to ALD. In our view, Commerce Commission (ComCom) approval remains the main barrier to the transaction completing, which in turn relies on ALD successfully selling Gull. The ComCom's Statement of Issues focussed on issues with an IPO, such that a trade sale appears the only likely method of divesting Gull that will appease competition concerns. As expected, the ComCom extended its estimated decision date to 16 March 2022. ALD is reporting its FY21 result on Monday, 21 February 2022, and we expect it will update the market on its progress divesting Gull at that time.</p>
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Z Energy Swings and Roundabouts —&nbsp;3Q22 Op Stats

NEUTRAL
With attention firmly fixed on the nearing&nbsp;Ampol&nbsp;(ALD) takeover, Z Energy (ZEL) reported a mixed 3Q22 operating update in which improving retail (temporarily) and refining margins were offset by the stop-start nature of New&nbsp;Zealand's&nbsp;post-lockdown&nbsp;reopening continuing to weigh on core business volumes. Importantly, ZEL reconfirmed FY22 EBITDAF guidance to be between NZ$270m and NZ$310m, albeit the range remains wide. With ZEL currently under takeover and the current share price a reflection of that, we remain NEUTRAL on the stock.


What's changed?&nbsp;



Earnings:&nbsp;FY22/FY23/FY24 EBITDAF trimmed -NZ$1m/-NZ$2m/-NZ$2m to NZ$285m/NZ$323m/NZ$325m respectively



3Q22 operating statistics mixed with COVID and refinery conversion at the centre


ZEL's&nbsp;3Q22&nbsp;was a case of the positives being offset by a few headwinds. The two key positives were 1) MBIE retail margins&nbsp;averaging 39.2cpl, up +21% on&nbsp;2Q22 due to a decline in the crude oil price during the early part of the quarter (which has since reversed). That said, ZEL indicated the tailwind was +1cpl. 2) Refining margins also lifted during 3Q22, allowing ZEL to claw back some of the prior&nbsp;fee floor payments paid to Refining NZ (NZR). Offsetting these positives&nbsp;were weaker retail volumes, down -13% on the prior period, stung by the tail end of the upper North Island&nbsp;lockdowns. In addition, ZEL estimates the conversion of the refinery&nbsp;to an import only model will&nbsp;cost it between -NZ$3m to -NZ$5m,&nbsp;a combination of&nbsp;partly processed crude that will have to exported at a loss as well as one-off closure costs.&nbsp;
We have made minor forecast changes&nbsp;with the positives noted above being broadly offset by the headwinds. In addition, short-term retail margins are currently under pressure, given the sharp rise in crude oil prices since early&nbsp;December 2021.


Market more positive on&nbsp;Ampol&nbsp;transaction, ZEL shareholder voting material to be released in coming month


ZEL's share price has recently risen back towards the takeover price of NZ$3.76, indicating the market's increasing confidence that the deal will proceed. We estimate the market is pricing in an 83% probability the deal completes. ZEL shareholder voting materials will likely be released in February 2022, preceding a shareholder vote sometime in late 1QCY22 on whether to approve the sale to ALD. In our view, Commerce Commission (ComCom) approval remains the main barrier to the transaction completing, which in turn relies on ALD successfully selling Gull. The ComCom's Statement of Issues focussed on issues with an IPO, such that a trade sale appears the only likely method of divesting Gull that will appease competition concerns. As expected, the ComCom extended its estimated decision date to 16 March 2022. ALD is reporting its FY21 result on Monday, 21 February 2022, and we expect it will update the market on its progress divesting Gull at that time.


Z Energy: Swings and Roundabouts — 3Q22 Op Stats

Z Energy Ltd

Z Energy: Swings and Roundabouts — 3Q22 Op Stats