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

<h2>Z Energy<br>Ampol&nbsp;gets its Target</h2>
<div></div>
<p><strong>NEUTRAL</strong></p>
<p>Ampol&nbsp;(ALD) has marginally lifted its Z Energy (ZEL) bid, allowing ZEL to pay an interim 5cps dividend, meaning the effective transaction price is now NZ$3.83. There is also additional price accretion if the transaction completes after 31 March 2022. Australian media speculation throughout the exclusivity period meant the modestly revised offer was not a great surprise, but it was sufficient for the ZEL Board to give its unanimous support. In our view the most likely scenario is that the deal proceeds as proposed, with upside (most likely a second bidder) and downside (deal not meeting one of its conditions) scenarios equally balanced. Our modestly revised target price of NZ$3.64 (up +4cps) assumes the transaction is completed as proposed. Our rating remains NEUTRAL.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/234/572/original/image_31568756231634003276679.png?1634003279" class="editor-image img-responsive" data-smartkarma-image-id="234572"></figure>
<div>
<h3>What's changed?&nbsp;</h3>
</div>
<div id="m_5248413339789142859iwrmo3">
<ul>
<li><strong>Target price</strong>:&nbsp;Increased +4cps (+1.1%) to NZ$3.64</li>
</ul>
</div>
<div>
<h3>NZ$3.78 with dividends</h3>
</div>
<div id="m_5248413339789142859inhzx">
<p>ALD's&nbsp;offer is effectively the same as the one made six weeks ago prior to the&nbsp;dataroom&nbsp;being opened, but enables ZEL to pay some dividends without impacting on the NZ$3.78 offer price. ZEL is now able to pay a 5cps 1H22 dividend without impacting the price and if the transaction completes&nbsp;after 31 March 2022, shareholders will be topped up at a rate of 0.055cps/day up to a maximum of 10cps. The&nbsp;last date the deal can be completed on agreed terms is&nbsp;11 October 2022.&nbsp;ZEL's&nbsp;Board unanimously supports the deal.</p>
</div>
<div>
<h3>Upside and downside risk still exists, but a sale at the agreed price the most likely outcome</h3>
</div>
<div id="m_5248413339789142859ifcxc">
<p>In our view the most likely (and our base case) scenario is the transaction proceeds with an effective sale price of NZ$3.83 (includes 5cps dividend). The main upside scenario is that another prospective buyer starts a bidding war (although ZEL cannot solicit another bid), with another upside scenario being the independent adviser valuing ZEL at more than NZ$3.83. The downside risk for investors is the deal does not go ahead, with the most likely cause being ALD's inability to sell Gull. Assuming ALD can sell Gull, we expect the ComCom will provide clearance for the deal. On balance, we believe the upside and downside scenarios roughly offset each other. We discuss the seven key transaction conditions in more detail later in the report</p>
</div>
<div>
<h3>Current NZ$3.61 share price points to a return of between 7.0% and 8.0% until completion</h3>
</div>
<div id="m_5248413339789142859ibydq">
<p>If the deal goes ahead as proposed&nbsp;investors will likely receive a return of between 7.0% and 8.0% (which assumes the transaction is completed between May 2022 and July 2022). Our 12-month target price of NZ$3.64 is -14cps below the NZ$3.78 offer price,&nbsp;assumes the transaction goes ahead, and that ZEL pays an FY22 dividend of 19cps. Our rating is NEUTRAL as without a second bidder&nbsp;there is limited upside.</p>
</div>

Z Energy Ampol&nbsp;gets its Target

NEUTRAL
Ampol&nbsp;(ALD) has marginally lifted its Z Energy (ZEL) bid, allowing ZEL to pay an interim 5cps dividend, meaning the effective transaction price is now NZ$3.83. There is also additional price accretion if the transaction completes after 31 March 2022. Australian media speculation throughout the exclusivity period meant the modestly revised offer was not a great surprise, but it was sufficient for the ZEL Board to give its unanimous support. In our view the most likely scenario is that the deal proceeds as proposed, with upside (most likely a second bidder) and downside (deal not meeting one of its conditions) scenarios equally balanced. Our modestly revised target price of NZ$3.64 (up +4cps) assumes the transaction is completed as proposed. Our rating remains NEUTRAL.


What's changed?&nbsp;



Target price:&nbsp;Increased +4cps (+1.1%) to NZ$3.64



NZ$3.78 with dividends


ALD's&nbsp;offer is effectively the same as the one made six weeks ago prior to the&nbsp;dataroom&nbsp;being opened, but enables ZEL to pay some dividends without impacting on the NZ$3.78 offer price. ZEL is now able to pay a 5cps 1H22 dividend without impacting the price and if the transaction completes&nbsp;after 31 March 2022, shareholders will be topped up at a rate of 0.055cps/day up to a maximum of 10cps. The&nbsp;last date the deal can be completed on agreed terms is&nbsp;11 October 2022.&nbsp;ZEL's&nbsp;Board unanimously supports the deal.


Upside and downside risk still exists, but a sale at the agreed price the most likely outcome


In our view the most likely (and our base case) scenario is the transaction proceeds with an effective sale price of NZ$3.83 (includes 5cps dividend). The main upside scenario is that another prospective buyer starts a bidding war (although ZEL cannot solicit another bid), with another upside scenario being the independent adviser valuing ZEL at more than NZ$3.83. The downside risk for investors is the deal does not go ahead, with the most likely cause being ALD's inability to sell Gull. Assuming ALD can sell Gull, we expect the ComCom will provide clearance for the deal. On balance, we believe the upside and downside scenarios roughly offset each other. We discuss the seven key transaction conditions in more detail later in the report


Current NZ$3.61 share price points to a return of between 7.0% and 8.0% until completion


If the deal goes ahead as proposed&nbsp;investors will likely receive a return of between 7.0% and 8.0% (which assumes the transaction is completed between May 2022 and July 2022). Our 12-month target price of NZ$3.64 is -14cps below the NZ$3.78 offer price,&nbsp;assumes the transaction goes ahead, and that ZEL pays an FY22 dividend of 19cps. Our rating is NEUTRAL as without a second bidder&nbsp;there is limited upside.


Z Energy Ltd

Z Energy: Ampol Gets Its Target