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</h2>
<p><strong>Coming Out of&nbsp;Lockdown</strong></p>
<p><strong>OUTPERFORM</strong></p>
<p>Following Z Energy's (ZEL) NZ$347.5m equity raise, our coverage of ZEL comes out of lockdown (restricted coverage) with an OUTPERFORM rating and an NZ$4.20 target price. Trading in recent weeks has been encouraging, aided by New Zealand moving to Alert Level 1 earlier than we (or ZEL) had expected. In addition, ZEL's structural cost-out plans are greater than we had previously envisaged, boosting the longer-term outlook, ZEL's competitive position with the discounters and confidence that ZEL can produce the earnings to deliver an NZ28cps dividend in FY22.</p>
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<h3>Coming out of&nbsp;lockdown&nbsp;better than expected, structural cost-out story better than expected</h3>
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<p>New&nbsp;Zealand's&nbsp;move to Alert Level 1 has come almost three months earlier than we had envisaged. In addition, sales volumes under each Alert Level&nbsp;have tended to be better than expected. That is the main driver of the +$NZ17m lift in our FY21&nbsp;EBITDAF&nbsp;forecast to NZ$255m.</p>
<p>At the FY20 result, ZEL indicated it is removing -NZ$55m of structural costs (~-14%) from its opex base, -NZ$48m in FY21. This is better than we had been forecasting and is the key driver of our longer-term forecast improvements. Typically cost-out initiatives are lower risk and ZEL has indicated that (at this early stage) its plans are on target.&nbsp;</p>
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<h3>We forecast dividend reinstatement at the 1H22 result (September 2021) of NZ10cps (and FY22 dividend of NZ28cps)</h3>
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<div id="m_-4607363454405829002i7101">
<p>We are forecasting dividends to resume in FY22 at NZ28cps (1H22 dividend of NZ10cps). Whilst this is -NZ2cps lower than our pre-equity raise forecast, in NZ$ terms it is a +21% increase. The reduction of debt (due to the equity raise and no FY21 dividend as previously forecast) means ZEL does not have to repay debt as quickly as previously envisaged. Our NZ$146m dividend forecast is -9% lower than ZEL's pre COVID-19 dividend guidance of NZ40cps (NZ$160m), and our FY22 EBITDAF forecast of NZ$353m is above the bottom end of ZEL's pre COVID-19 FY20 guidance range. i.e. based on prior ZEL guidance, our FY22 EBITDAF forecast could theoretically support a dividend slightly above NZ30cps. We are, therefore, increasingly confident that ZEL will be able to reinstate its dividend to at least NZ25cps (assuming no more black swans appear).</p>
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<h3>Market position post&nbsp;COVID-19 will improve</h3>
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<div id="m_-4607363454405829002ipk53">
<p>Looking longer-term, COVID-19 should improve ZEL's competitive position. First, some of the discounters have pulled back on expansion plans (although we note NPD has decided to expand in the North Island instead of the South Island). Second, some of the lower volume sites in New Zealand will be struggling. Service stations closures should help ZEL regain some of its lost market share.</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>Scott Anderson</strong></div>
<div><a href="mailto:scott.anderson@forsythbarr.co.nz" target="_blank" rel="noopener">scott.anderson@forsythbarr.co.<wbr>nz</a></div>
<div>+64 4 914 2219</div>
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Z Energy
Coming Out of&nbsp;Lockdown
OUTPERFORM
Following Z Energy's (ZEL) NZ$347.5m equity raise, our coverage of ZEL comes out of lockdown (restricted coverage) with an OUTPERFORM rating and an NZ$4.20 target price. Trading in recent weeks has been encouraging, aided by New Zealand moving to Alert Level 1 earlier than we (or ZEL) had expected. In addition, ZEL's structural cost-out plans are greater than we had previously envisaged, boosting the longer-term outlook, ZEL's competitive position with the discounters and confidence that ZEL can produce the earnings to deliver an NZ28cps dividend in FY22.


Coming out of&nbsp;lockdown&nbsp;better than expected, structural cost-out story better than expected


New&nbsp;Zealand's&nbsp;move to Alert Level 1 has come almost three months earlier than we had envisaged. In addition, sales volumes under each Alert Level&nbsp;have tended to be better than expected. That is the main driver of the +$NZ17m lift in our FY21&nbsp;EBITDAF&nbsp;forecast to NZ$255m.
At the FY20 result, ZEL indicated it is removing -NZ$55m of structural costs (~-14%) from its opex base, -NZ$48m in FY21. This is better than we had been forecasting and is the key driver of our longer-term forecast improvements. Typically cost-out initiatives are lower risk and ZEL has indicated that (at this early stage) its plans are on target.&nbsp;


We forecast dividend reinstatement at the 1H22 result (September 2021) of NZ10cps (and FY22 dividend of NZ28cps)


We are forecasting dividends to resume in FY22 at NZ28cps (1H22 dividend of NZ10cps). Whilst this is -NZ2cps lower than our pre-equity raise forecast, in NZ$ terms it is a +21% increase. The reduction of debt (due to the equity raise and no FY21 dividend as previously forecast) means ZEL does not have to repay debt as quickly as previously envisaged. Our NZ$146m dividend forecast is -9% lower than ZEL's pre COVID-19 dividend guidance of NZ40cps (NZ$160m), and our FY22 EBITDAF forecast of NZ$353m is above the bottom end of ZEL's pre COVID-19 FY20 guidance range. i.e. based on prior ZEL guidance, our FY22 EBITDAF forecast could theoretically support a dividend slightly above NZ30cps. We are, therefore, increasingly confident that ZEL will be able to reinstate its dividend to at least NZ25cps (assuming no more black swans appear).


Market position post&nbsp;COVID-19 will improve


Looking longer-term, COVID-19 should improve ZEL's competitive position. First, some of the discounters have pulled back on expansion plans (although we note NPD has decided to expand in the North Island instead of the South Island). Second, some of the lower volume sites in New Zealand will be struggling. Service stations closures should help ZEL regain some of its lost market share.



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





Scott Anderson
scott.anderson@forsythbarr.co.nz
+64 4 914 2219



Z Energy Ltd

Z Energy: Coming Out of Lockdown