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

Channel Infrastructure NZ Ltd / Equity Bottom-Up

<h2>Refining NZ<br>Conversion Confirmed, Refinery Terminal</h2>
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<p><strong>OUTPERFORM</strong></p>
<p>Refining NZ (NZR) has confirmed that from 1 April 2022 it will be an import terminal, with refining activities to cease after 60 years of operations. It took a while but NZR finally got there with its customers and has signed a Terminal Services Agreement (TSA) on terms consistent with those previously disclosed. In addition, NZR has indicated customers are seeking to take additional private storage which adds to&nbsp;NZR's&nbsp;earnings outlook and +8cps to our target price, which is now NZ$1.25. Further upside is possible if the government decides New Zealand needs additional strategic storage. We maintain our OUTPERFORM rating as NZR converts from a high earnings volatility refinery to a low risk infrastructure&nbsp;player.</p>
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<h3>What's changed?&nbsp;</h3>
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<li><strong>Earnings</strong>:&nbsp;FY21 EBITDA unchanged, FY22/FY23 EBITDA increased +NZ$4m/+NZ$9m to NZ$74m/NZ$84m respectively</li>
<li><strong>Target price</strong>:&nbsp;Increased +8cps (+6.8%) to NZ$1.25</li>
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<h3>Private storage upside confirmed, with possibly more to come</h3>
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<p>NZR's key announcement related to confirmation that it will be providing additional private storage over and above that included within the TSA. Additional storage will allow the customers to bring in bigger refined product shipments, lowering shipping costs. Capex costs on the first contracts are expected to be ~NZ$30m which will deliver ~+NZ$5m per annum of revenue. Additional private storage is likely, adding a further +NZ$6m of annual revenue at capex of ~NZ$25m. These additional revenues will largely pass through to EBITDA, with minor additional opex. The inclusion of private storage earnings is the main driver behind the +6.8% increase in our target price to NZ$1.25. In addition, there is further upside if the government decides to require an increase in strategic storage. NZR is in a strong position to provide that storage given it has surplus crude tanks that can be converted at lower cost than new builds.&nbsp;</p>
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<h3>Forecast changes reflect earlier than assumed conversion date and addition of private storage upside</h3>
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<p>Our forecast changes reflect two key assumption changes. First, NZR expects to complete the conversion work in four months, faster than we had previously forecast, which means it will operate as a refinery for three months less in FY22. Terminal operations are more profitable than refining operations (when the refinery operates at the fee floor) —&nbsp;this is the main factor behind the +NZ$4m increase FY22 EBITDA. Second, the inclusion of private storage revenue boosts FY22 earnings (slightly) and FY23 more materially.&nbsp;</p>
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Refining NZ Conversion Confirmed, Refinery Terminal

OUTPERFORM
Refining NZ (NZR) has confirmed that from 1 April 2022 it will be an import terminal, with refining activities to cease after 60 years of operations. It took a while but NZR finally got there with its customers and has signed a Terminal Services Agreement (TSA) on terms consistent with those previously disclosed. In addition, NZR has indicated customers are seeking to take additional private storage which adds to&nbsp;NZR's&nbsp;earnings outlook and +8cps to our target price, which is now NZ$1.25. Further upside is possible if the government decides New Zealand needs additional strategic storage. We maintain our OUTPERFORM rating as NZR converts from a high earnings volatility refinery to a low risk infrastructure&nbsp;player.


What's changed?&nbsp;



Earnings:&nbsp;FY21 EBITDA unchanged, FY22/FY23 EBITDA increased +NZ$4m/+NZ$9m to NZ$74m/NZ$84m respectively
Target price:&nbsp;Increased +8cps (+6.8%) to NZ$1.25



Private storage upside confirmed, with possibly more to come


NZR's key announcement related to confirmation that it will be providing additional private storage over and above that included within the TSA. Additional storage will allow the customers to bring in bigger refined product shipments, lowering shipping costs. Capex costs on the first contracts are expected to be ~NZ$30m which will deliver ~+NZ$5m per annum of revenue. Additional private storage is likely, adding a further +NZ$6m of annual revenue at capex of ~NZ$25m. These additional revenues will largely pass through to EBITDA, with minor additional opex. The inclusion of private storage earnings is the main driver behind the +6.8% increase in our target price to NZ$1.25. In addition, there is further upside if the government decides to require an increase in strategic storage. NZR is in a strong position to provide that storage given it has surplus crude tanks that can be converted at lower cost than new builds.&nbsp;


Forecast changes reflect earlier than assumed conversion date and addition of private storage upside


Our forecast changes reflect two key assumption changes. First, NZR expects to complete the conversion work in four months, faster than we had previously forecast, which means it will operate as a refinery for three months less in FY22. Terminal operations are more profitable than refining operations (when the refinery operates at the fee floor) —&nbsp;this is the main factor behind the +NZ$4m increase FY22 EBITDA. Second, the inclusion of private storage revenue boosts FY22 earnings (slightly) and FY23 more materially.&nbsp;


Refining NZ: Conversion Confirmed, Refinery Terminal