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>NZR Channelling Its Energy Into Infrastructure</h2>
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<p><strong>OUTPERFORM</strong></p>
<p>Refining NZ&nbsp;(NZR) has taken the next step towards converting to an import terminal with the release of its&nbsp;Marsden&nbsp;Point Conversion Proposal (MPCP) which provides further clarity on its outlook. We have lifted our target price +NZ$0.25 (+29%) to NZ$1.10 and our rating is OUTPERFORM. The conversion of NZR to an import terminal (including a name change to Channel Infrastructure NZ Limited) will result in a low-risk infrastructure play that we expect will deliver a steady earnings stream and dividends from FY23 onwards.</p>
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<h3>What's changed?&nbsp;</h3>
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<li><strong>Earnings/dividend</strong>:&nbsp;No material change to the next four years. FY23/FY24 dividend increased +0.5cps/+1.5cps to 3.5cps/7.5cps</li>
<li>​​​​​​​<strong>Target price</strong>:&nbsp;Increased +25cps to NZ$1.10/share</li>
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<h3>Outlook more positive as NZR provides more clarity</h3>
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<p>The MPCP has provided additional clarity and is the next step towards NZR gaining shareholder approval and converting to an import terminal. The +29% increase in our target price reflects a +26cps increase in our DCF valuation to NZ$1.11 as we have increased our volume assumption (due a reassessment of volumes) and prices (due to PPI indexation of revenue). In addition, under a more positive scenario, using Hale &amp; Twomey forecast volumes and assuming customers contract for additional private storage facilities, adds a further +28cps (+25%) to our DCF valuation, taking it to NZ$1.39. There remains strong upside to NZR's share price and our rating is OUTPERFORM.</p>
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<h3>Attractive investment attributes</h3>
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<p>Changing to an import terminal materially derisks the business and so long as Auckland Airport requires aviation fuel, NZR has a long-term future as an infrastructure provider. After its initial conversion (assumed to take place June 2022), we expect NZR to resume paying dividends at its FY23 result, rising to ~12cps by FY28. That implies an initial annualised cash dividend yield of 10.4% lifting to 18.1% by FY28. In time, we expect NZR to trade on multiples and dividend yields similar to other infrastructure providers (adjusted for expected volume declines). With revenues linked to PPI, NZR will provide investors with a strong hedge against inflation. In addition, the PPI uplift helps offset long-term volume declines, such that nominal revenue and earnings remain relatively flat.</p>
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<div><strong>Andrew Harvey-Green</strong></div>
<div><a href="mailto:andrew.harvey-green@forsythbarr.co.nz" target="_blank" rel="noopener">andrew.harvey-green@<wbr>forsythbarr.co.nz</a></div>
<div>+64 4 495 8185</div>
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<div><strong>Mark Robertson</strong></div>
<div><a href="mailto:mark.robertson@forsythbarr.co.nz" target="_blank" rel="noopener">mark.robertson@forsythbarr.co.<wbr>nz</a></div>
<div>+64 4 495 5264</div>
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Refining NZ NZR Channelling Its Energy Into Infrastructure

OUTPERFORM
Refining NZ&nbsp;(NZR) has taken the next step towards converting to an import terminal with the release of its&nbsp;Marsden&nbsp;Point Conversion Proposal (MPCP) which provides further clarity on its outlook. We have lifted our target price +NZ$0.25 (+29%) to NZ$1.10 and our rating is OUTPERFORM. The conversion of NZR to an import terminal (including a name change to Channel Infrastructure NZ Limited) will result in a low-risk infrastructure play that we expect will deliver a steady earnings stream and dividends from FY23 onwards.


What's changed?&nbsp;



Earnings/dividend:&nbsp;No material change to the next four years. FY23/FY24 dividend increased +0.5cps/+1.5cps to 3.5cps/7.5cps
​​​​​​​Target price:&nbsp;Increased +25cps to NZ$1.10/share



Outlook more positive as NZR provides more clarity


The MPCP has provided additional clarity and is the next step towards NZR gaining shareholder approval and converting to an import terminal. The +29% increase in our target price reflects a +26cps increase in our DCF valuation to NZ$1.11 as we have increased our volume assumption (due a reassessment of volumes) and prices (due to PPI indexation of revenue). In addition, under a more positive scenario, using Hale &amp; Twomey forecast volumes and assuming customers contract for additional private storage facilities, adds a further +28cps (+25%) to our DCF valuation, taking it to NZ$1.39. There remains strong upside to NZR's share price and our rating is OUTPERFORM.


Attractive investment attributes


Changing to an import terminal materially derisks the business and so long as Auckland Airport requires aviation fuel, NZR has a long-term future as an infrastructure provider. After its initial conversion (assumed to take place June 2022), we expect NZR to resume paying dividends at its FY23 result, rising to ~12cps by FY28. That implies an initial annualised cash dividend yield of 10.4% lifting to 18.1% by FY28. In time, we expect NZR to trade on multiples and dividend yields similar to other infrastructure providers (adjusted for expected volume declines). With revenues linked to PPI, NZR will provide investors with a strong hedge against inflation. In addition, the PPI uplift helps offset long-term volume declines, such that nominal revenue and earnings remain relatively flat.



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





Mark Robertson
mark.robertson@forsythbarr.co.nz
+64 4 495 5264



Refining NZ: NZR Channelling Its Energy Into Infrastructure