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</h2>
Mike Hikes to CEN — July/August 2019 Operating Statistics
Refining NZ (NZR) has reported July/August 2019 processing fee revenue of $56.2m, +75% more than the prior two month period and gross refining margins (GRM) rebounded. Whilst the GRM and processing fee revenue were a little below expectations, recent weakness in the NZDUSD means we have left our forecast unchanged. The surprise announcement this week has been CEO Mike Fuge’s resignation, one year into the job.
What’s changed?
<ul>
<li>Earnings: NPAT unchanged at NZ$43m</li>
<li>Target Price: Unchanged at $2.15</li>
<li>Rating:&nbsp;NEUTRAL rating retained</li>
</ul>
GRM rebound, but possibly more to go
The July/August 2019 gross refining margin (GRM) of US$7.10/barrel was +$63% higher than the May/June 2019 period as gasoline (petrol) spreads recovered strongly. NZR’s GRM uplift over the Singapore complex margin was +US$3.87/barrel — a solid figure, but the lowest uplift since the large refinery outage in May/June 2018. Throughput was strong at 7.42m barrels, the highest figure in 10 months. The processing fee was NZ$56.2m, -$3.7m lower than our estimate for July/August, but +75% higher than the May/June 2019 period, highlighting how difficult those two months were.
We have not changed our FY19 forecasts as whilst the GRM was slightly below expectations, the recent fall in the NZDUSD largely offsets that weakness. As yet, the impact of the forthcoming Marpol regulations do not appear to be having a material impact on NZR’s GRM, although we still expect that firmness heading into 4Q19. We estimate the September GRM has averaged US$7.40/barrel and our 2H19 GRM assumption of US$7.75/barrel implicitly assumes an average GRM of US$8.00/barrel for the last four months of 2019.
Surprise CEO resignation, one year into the job
The surprise announcement this week was the resignation of CEO Mike Fuge to take on the CEO role at electricity generator/retailer Contact Energy (CEN). Mr Fuge has only been with NZR for little over a year and having completed a strategy review was moving into the implementation phase. His current departure date is expected to be March 2020.
Pipeline inquiry commends NZR
On Tuesday, the Government released its Wiri Pipeline Inquiry report. Whilst we did not expect any downside from the report, it did commend NZR on the pipeline repair and the work it has since done to improve resilience where possible.&nbsp;
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Investment View
Our rating is NEUTRAL. NZR’s near-term outlook is looking more positive with shipping fuel specification changes likely to be positive in the coming months. However, we see medium-term uncertainties, particularly demand risk as the global economy slows which may weigh on the GRM
</div>
Andrew Harvey-Green
andrew.harvey-green@forsythbarr.co.nz
+64 4 495 8185

Refining NZ
Mike Hikes to CEN — July/August 2019 Operating Statistics
Refining NZ (NZR) has reported July/August 2019 processing fee revenue of $56.2m, +75% more than the prior two month period and gross refining margins (GRM) rebounded. Whilst the GRM and processing fee revenue were a little below expectations, recent weakness in the NZDUSD means we have left our forecast unchanged. The surprise announcement this week has been CEO Mike Fuge’s resignation, one year into the job.
What’s changed?

Earnings: NPAT unchanged at NZ$43m
Target Price: Unchanged at $2.15
Rating:&nbsp;NEUTRAL rating retained

GRM rebound, but possibly more to go
The July/August 2019 gross refining margin (GRM) of US$7.10/barrel was +$63% higher than the May/June 2019 period as gasoline (petrol) spreads recovered strongly. NZR’s GRM uplift over the Singapore complex margin was +US$3.87/barrel — a solid figure, but the lowest uplift since the large refinery outage in May/June 2018. Throughput was strong at 7.42m barrels, the highest figure in 10 months. The processing fee was NZ$56.2m, -$3.7m lower than our estimate for July/August, but +75% higher than the May/June 2019 period, highlighting how difficult those two months were.
We have not changed our FY19 forecasts as whilst the GRM was slightly below expectations, the recent fall in the NZDUSD largely offsets that weakness. As yet, the impact of the forthcoming Marpol regulations do not appear to be having a material impact on NZR’s GRM, although we still expect that firmness heading into 4Q19. We estimate the September GRM has averaged US$7.40/barrel and our 2H19 GRM assumption of US$7.75/barrel implicitly assumes an average GRM of US$8.00/barrel for the last four months of 2019.
Surprise CEO resignation, one year into the job
The surprise announcement this week was the resignation of CEO Mike Fuge to take on the CEO role at electricity generator/retailer Contact Energy (CEN). Mr Fuge has only been with NZR for little over a year and having completed a strategy review was moving into the implementation phase. His current departure date is expected to be March 2020.
Pipeline inquiry commends NZR
On Tuesday, the Government released its Wiri Pipeline Inquiry report. Whilst we did not expect any downside from the report, it did commend NZR on the pipeline repair and the work it has since done to improve resilience where possible.&nbsp;

Investment View
Our rating is NEUTRAL. NZR’s near-term outlook is looking more positive with shipping fuel specification changes likely to be positive in the coming months. However, we see medium-term uncertainties, particularly demand risk as the global economy slows which may weigh on the GRM

Andrew Harvey-Green
andrew.harvey-green@forsythbarr.co.nz
+64 4 495 8185

Refining NZ: Mike Hikes to CEN — July/August 2019 Operating Statistics