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>Sometimes Standing Still is Good - 1H21 Result</h2>
<div></div>
<p><strong>OUTPERFORM</strong></p>
<p>Refining NZ (NZR) continues to perform well, operating the refinery on a cash neutral basis despite minimum processing fee revenue for the third consecutive six month&nbsp;period. NZR has reported a 1H21 loss after tax of -NZ$5m, slightly better than our forecast. NZR continues to work towards becoming an import terminal with the key focus of signing up its three customers to a terminal service agreement by the end of September 2021. With all three customers supporting the terminal conversion at the recent shareholder vote, this should not be an issue. We lift our target price +7cps (+6.4%) to NZ$1.17 due to the release of a defined benefit provision and better 1H21 cash flows than expected. We continue to see good upside in NZR as it transitions to a low risk business model. OUTPERFORM.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/224/874/original/image_52212334721629350358366.png?1629350361" class="editor-image img-responsive" data-smartkarma-image-id="224874"></figure>
<div>
<h3>What's changed?&nbsp;</h3>
</div>
<div id="m_-5725626687069610983iwrmo3">
<ul>
<li><strong>Earnings</strong>:&nbsp;FY21 EBITDAF increased +NZ$3m (+5%) to NZ$71m</li>
<li><strong>Target price</strong>:&nbsp;Increased +7cps (+6.4%) to NZ$1.17</li>
</ul>
</div>
<div>
<h3>Limited new information as NZR works towards its financial investment decision (FID)</h3>
</div>
<div id="m_-5725626687069610983ijk8s">
<p>The key focus is&nbsp;NZR's&nbsp;progress towards converting to an import terminal and a new business model. In early August&nbsp;the conversion gained shareholder approval, with 99% of those voting in favour, including&nbsp;NZR's&nbsp;three large customers. Today, NZR announced that lenders have also provided consent for the conversion. The main outstanding requirement is for the three customers to sign binding terminal services agreements (two have agreed in-principal terms) which is expected around the end of September 2021.&nbsp;</p>
</div>
<div>
<h3>1H21 result hitting the required targets</h3>
</div>
<div id="m_-5725626687069610983iosia">
<p>NZR has one operational task at present&nbsp;and that is preserve cash ahead of its conversion to an import terminal. It continues to do well, ensuring there is no change in debt levels as it marks time before it can convert. Net debt at 30 June 2021&nbsp;was flat on 31 December 2020 at NZ$230m. However, this was +NZ$10m better than our forecast, with&nbsp;capex&nbsp;coming in lower than expected (NZR had a significant&nbsp;plant outage in 1H21 that it completed under budget). NZR reported 1H21 EBITDA of NZ$42m, +NZ$5m better than our forecast, with all of the&nbsp;outperformance&nbsp;due to a non-cash +NZ$9m gain on pension fund and medical scheme settlements.</p>
<p>We have lifted our target price +7cps to NZ$1.17. The two factors lifting our valuation are a lower&nbsp;capex&nbsp;assumption (-NZ$15m) and the reduction in the defined benefit obligation of -NZ$20m, following the settlement of some&nbsp;pension fund obligations without recourse to company funds.</p>
</div>

Refining NZ Sometimes Standing Still is Good - 1H21 Result

OUTPERFORM
Refining NZ (NZR) continues to perform well, operating the refinery on a cash neutral basis despite minimum processing fee revenue for the third consecutive six month&nbsp;period. NZR has reported a 1H21 loss after tax of -NZ$5m, slightly better than our forecast. NZR continues to work towards becoming an import terminal with the key focus of signing up its three customers to a terminal service agreement by the end of September 2021. With all three customers supporting the terminal conversion at the recent shareholder vote, this should not be an issue. We lift our target price +7cps (+6.4%) to NZ$1.17 due to the release of a defined benefit provision and better 1H21 cash flows than expected. We continue to see good upside in NZR as it transitions to a low risk business model. OUTPERFORM.


What's changed?&nbsp;



Earnings:&nbsp;FY21 EBITDAF increased +NZ$3m (+5%) to NZ$71m
Target price:&nbsp;Increased +7cps (+6.4%) to NZ$1.17



Limited new information as NZR works towards its financial investment decision (FID)


The key focus is&nbsp;NZR's&nbsp;progress towards converting to an import terminal and a new business model. In early August&nbsp;the conversion gained shareholder approval, with 99% of those voting in favour, including&nbsp;NZR's&nbsp;three large customers. Today, NZR announced that lenders have also provided consent for the conversion. The main outstanding requirement is for the three customers to sign binding terminal services agreements (two have agreed in-principal terms) which is expected around the end of September 2021.&nbsp;


1H21 result hitting the required targets


NZR has one operational task at present&nbsp;and that is preserve cash ahead of its conversion to an import terminal. It continues to do well, ensuring there is no change in debt levels as it marks time before it can convert. Net debt at 30 June 2021&nbsp;was flat on 31 December 2020 at NZ$230m. However, this was +NZ$10m better than our forecast, with&nbsp;capex&nbsp;coming in lower than expected (NZR had a significant&nbsp;plant outage in 1H21 that it completed under budget). NZR reported 1H21 EBITDA of NZ$42m, +NZ$5m better than our forecast, with all of the&nbsp;outperformance&nbsp;due to a non-cash +NZ$9m gain on pension fund and medical scheme settlements.
We have lifted our target price +7cps to NZ$1.17. The two factors lifting our valuation are a lower&nbsp;capex&nbsp;assumption (-NZ$15m) and the reduction in the defined benefit obligation of -NZ$20m, following the settlement of some&nbsp;pension fund obligations without recourse to company funds.


Refining NZ: Sometimes Standing Still Is Good - 1H21 Result