Z Energy float to go ahead

Infratil and the NZ Super Fund confirm they will look to sell up to 60% of Z Energy; share price NZ$3.25-NZ$3.75, raising between NZ$650 mln and NZ$900 mln

25th Jul 13, 2:04pm by David Hargreaves

Infratil and the NZ Super Fund have confirmed they will look to float up to 60% of their jointly-owned (50-50) Z Energy, raising possibly as much as NZ$900 million.

The float will take place next month, with the Z shares to be listed both on the NZX in New Zealand and the ASX in Australia. The indicative range for the share price is between NZ$3.25 and NZ$3.75, which would raise between NZ$650 million and NZ$900 million for the Super Fund and Infratil.

If the top end of the price range was to be achieved, this would be a terrific pay day for the Super Fund and Infratil, given that the whole company cost just NZ$696.5 million three years ago when bought from global energy giant Shell.

Z's assets include a fuel distribution network, service stations, truck stops and a 17.1% stake in the Marsden Point oil refinery.

The float will be an interesting test of market conditions, coming as it does in between the Government's float of 49% of Mighty River Power earlier this year and the proposed float - possibly in about October of Meridian Energy.

A successful float of Z would be a fillip for the Meridian float, but if it didn't go well the reverse could be the case. Since listing MRP shares have struggled and as of today were still below their NZ$2.50 issue price, at NZ$2.39.

Infratil chief executive Marko Bogoievski said Z Energy had strong cash flows, a good dividend outlook and had identified a range of potential future growth areas, including new retail service stations, customer offers and enhancements to Z’s terminal infrastructure.

“This listing is an opportunity for investors to take a stake in a major infrastructure and retailing company that plays a significant role in keeping New Zealand’s economy moving,” said Mr Bogoievski.

Mr Bogoievski said “Z Energy has been a very good investment for Infratil and while an Initial Public Offering will see us reducing our holding we will still have a significant investment after the proposed IPO.”

Super Fund spokesperson Stewart Brooks said funds raised would be re-invested by the fund in other investment opportunities in New Zealand and internationally.

As outlined in the offer document, the remaining shares held by Infratil and the Fund will be locked in until after the release of Z’s results for the half year to 30 September 2014.

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15 Comments

by Stephen Hulme | 25th Jul 13, 4:11pm 1374725493

Infratil chief executive Marko Bogoievski said Z Energy had strong cash flows, a good dividend outlook and had identified a range of potential future growth areas, including new retail service stations, customer offers and enhancements to Z’s terminal infrastructure.

Hmmm -

According to Z's results presentation last week, the bottom line profit was 2.3c a litre, up about 10 per cent from 2.1c a litre a year ago.

Unfortunately Chalkie can't really tell which bottom line Bennetts was talking about, because there are three to choose from and, after adjusting for current cost, none of them seem to translate to a profit of 2.3c a litre.

Making things more awkward is that the results Z talks about in presentations are the ones it does not disclose - we can see the full numbers for Z Energy and for Z's parent Aotea Energy, but not for group company Aotea Energy Holdings, which is where the shareholder debt lies.

Chalkie reckons this all adds up to a headache for investors thinking about acquiring a few shares from owners Infratil and the Super Fund in Z's partial float, if it happens.

The company may be a decent infrastructure business with a good brand, economies of scale and gradually improving margins, but, like talking to someone with a squint, it's hard to be sure which numbers to look at. And if Z is increasing its margins, perhaps it's only because the whole industry is becoming more profitable. And if the industry is becoming more profitable, is it a sign of anti-competitive behaviour that will attract the regulator's eye? Read more

by Gummy Bear Hero | 25th Jul 13, 4:27pm 1374726444

True , Hulmey , but look at Synlait , that's just a low profit margin bulk commodity business too , and it roared up 25 % on it's opening day of trade ....

... the great Kiwi punter ------ ooooops , my bad , the great Kiwi investor will biff a fist full of dollars at anything in this low interest rates / property exuberance environment ....

Shell bailed out of this company , and now the Cullen Fund & Infratil are selling down drastically : A question for any would be Z-Energy investor : Do you feel that you can see some hidden value in this business that Shell / NZSuper & Infratil have missed ?

by Stephen Hulme | 25th Jul 13, 5:03pm 1374728618

Synlait, is the trojan horse set to destroy the NZ dairy farmer's dream. The surprise, late entrance of the giant Dutch milk processor on the share register certainly made things a little more interesting for all concerned - I wouldn't have minded getting few shares in that one as well if I had the inside info beforehand..

by Gummy Bear Hero | 26th Jul 13, 9:11am 1374786717

Talking to Larcus Mush on Radio Liver this morning , Bernard claimed that floated at the top of it's price range , Z-Energy would have a market capitalisation of $NZ 1.5 billion dollars ....

.... given that's it's a slow growth , low margin dinosaur industry company , we'll attribute a modest NZX trading PE of 12.5 to it , for argument's sake .... thereabouts is " fair " value ...

Based on that metric , the company would have to consistently earn a net annual profit of around $NZ 120 million ....

.... but does it actually achieve this figure ?

by Stephen L | 25th Jul 13, 5:40pm 1374730857

It will be interesting to see how much debt they load onto Z's books; and the impact of that on the likely bottom line. Margins would not seem to be under major threat, from the regulators at least, in that returns don't seem so massive as to really get the regulator's attention; the fact they may have once been smaller when Shell was here is not enough justification to really chase them. We also don't have excess refineries trying to dump fuels at any price; Aussie is I think closing or has closed some of its excess, while some in Singapore is likely to get soaked up by Asian demand growth.

Investing would need a view that retailing fuels is likely to be around for a good number of years, and not a significantly declining volume business; and/or that the real estate involved can be optimised to sell other stuff as well. PDK might see it falling off a cliff very quickly: I suspect a more gradual decline. The market share loss Chalkie talks of seems reckless; any details of which markets would be informative. Losing say low margin big volume jet fuel share for example may be less damaging than losing volume in petrol stations.

Why are Infratil and the Super fund selling down? Who knows for sure, but the quick upside is probably gone and they now can argue they have a concentration risk.

The price to earnings multiple they are talking of sounds like it allows a bit for those risks; and potentially worth keeping a few spare dollars for, pending the prospectus.

by Stephen Hulme | 25th Jul 13, 5:53pm 1374731598

Margins would not seem to be under major threat, from the regulators at least,

In reality It matters not.

Power retailers have been accused of rorting Auckland households by failing to pass on savings after regulators forced down lines charges.

Last year the Commerce Commission ordered infrastructure company Vector to cut distribution prices by 9 per cent, the equivalent of a $60 annual saving per year for an average household.

The rules came into force in April, but as of May only two out of 11 Auckland retailers had dropped their prices. Read more

by steven | 26th Jul 13, 7:56pm 1374825378

Personally I think because they know they bought a dog and paid too much. What % of their business is fossil fuel? too big I suspect and I can be think they will sell less and less fuel and have sites that no one will really want.

Maybe the superfund is listening to PDK and I...and ASPO etc etc....

;]

regards

by KH | 26th Jul 13, 9:22am 1374787372

Great commentary Stephen H. We need more of it on this site and in business generally. This sort of analysis is beyond my capability, and I am glad we have you to do it.

by Belle | 26th Jul 13, 10:35am 1374791758

As a consumer my experience of service stations. Basically more of a cafe than anything else. The food was ok but has taken turn 4 worse. What else do they sell? Ah sugar. In the form of chocolate, lollies and drinks. Um wot else...newpapers, cigarettes? Not sure on that 1 as u cant see them any more. I tried to buy a fuel can and rope the other day but zippo. Nothing in the shop bar rubbish food. Milk...get that cheaper at the dairy. So what have we, sugar shops on expensive prime sites. And from the horses mouth, they dont make money from the sale of fuel. Personally the wild bean thing had me addicted. But I am in recovery. So, I am off coffee, not into sugar, read news on line, dont smoke, get my car bits n bobs from repco now, its just the diesel thing and that apparently doesnt turn a profit for them. Not lookn good for zed in my opinion.

by Henry_Tull | 26th Jul 13, 12:44pm 1374799460

So what have we, sugar shops on expensive prime sites -

Sometimes...

Because of where they are yes, but individual sites are less the section next door as usually the sites require extensive remediation after 30+ plus years of spills and waste slinging....

The environmental liability can be substantial. however

from the prospectus page 70:

We have 213 retail service stations of which 56 are owned freehold, 152 are leased and 5 are independently owned. All of our retail service stations have forecourt concierges available between 10am and 5pm – because our customers told us that’s what they wanted.

and its who owns what/how page 123

The increase in property, plant and equipment over the three year period is reflective of our increased capital spending, as discussed below, offset by the sale and leaseback of certain retail sites in FY12 and FY13.

We will buy fishing bait sometimes..

by steven | 26th Jul 13, 8:10pm 1374826244

I bought a second hand machine on tm and ive never looked back

by Belle | 26th Jul 13, 7:23pm 1374823400

So do I have this right. A business based on profiting from chocolate bars. (And a bit of fishbait) Of which it only owns a quarter of the shops. And valuing it at over a billion.

by steven | 26th Jul 13, 7:47pm 1374824867

oh and ice....and the occasional milk and bread combo.

Shell sure saw them coming.

regards

by Belle | 26th Jul 13, 8:49pm 1374828562

Oh god Zed are stalking me, everywhere I go on this site they follow me.

by Gummy Bear Hero | 26th Jul 13, 9:02pm 1374829331

Paranoid about Zed ? .... you probably needn't be .... but why risk it , have a little panic attack just in case they really are stalking you ....

....... z z z z z Z Z Z Z Z ZZZZZZZ .......... Zenergy's here , baby Belle !!!!!! ......