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>Seeking Clarity — FY20 Result Preview</strong></p>
<p><strong>OUTPERFORM</strong></p>
<p>Z Energy's (ZEL) FY20 result will be firmly&nbsp;focussed&nbsp;on the outlook, as the market seeks clarity around 1H21 and whether there will be an initial debt covenant breach. The uncertain outlook has already resulted in&nbsp;ZEL&nbsp;suspending its final FY20 dividend. The result itself should contain no surprises, with 4Q20 rescuing FY20 to some degree.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/130/331/original/image_51775692221588136602831.png?1588136606" class="editor-image img-responsive" data-smartkarma-image-id="130331"></figure>
<p><strong>Strong 4Q20, but no final dividend</strong></p>
<div id="m_8278776127198136870iuy9p">
<p>After an awful 2Q20 and 3Q20, there was a material improvement in&nbsp;ZEL's&nbsp;fortunes in 4Q20 with retail competition easing slightly and the decline&nbsp;in oil prices providing a favourable finish to the year. However, that came to a shuddering halt in the final week of the financial&nbsp;year&nbsp;with the nation going into&nbsp;lockdown&nbsp;and fuel volumes falling ~-70%.&nbsp;ZEL&nbsp;has incurred/provided for $27m of costs in FY20, resulting in the guidance range of $355m to $365m. The uncertain 1H21 outlook has also led to&nbsp;ZEL&nbsp;shelving its&nbsp;final dividend.</p>
</div>
<p><strong>Banking and trading update the key focus</strong></p>
<div id="m_8278776127198136870icw4b">
<p>There is unlikely to be any surprise out of the FY20 result itself. However, the market is firmly focussed on the 1H21 outlook and whether ZEL will be able to avoid making an initial debt covenant breach at 30 September 2020 (noting a formal breach only occurs after two consecutive reporting periods). Given the uncertain outlook, ZEL has been in discussions with its working capital facility providers and debt funders, and we expect any commentary around those discussions will be critical to the market reaction on the day. Any reassurance that the covenants are less likely to be breached (or that the debt holders are willing to waive or adjust the covenants) will be viewed favourably. In addition, ZEL will have had two weeks of trading under Alert Level 3 and the recovery in fuel demand volumes post-lockdown will also be an important metric for the market.</p>
</div>
<p><strong>Don't expect FY21 guidance</strong></p>
<div id="m_8278776127198136870i0e7q">
<p>Given all the uncertainty ahead of it, we do not expect ZEL to provide FY21 earnings or dividend guidance. Our FY21 EBITDAF forecast is $238m (median consensus $278m) and we assume no interim dividend, with a final dividend of 20cps (consensus 11.4cps).</p>
</div>
<div>
<div>
<div>
<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>
</div>
</div>
</div>


Z Energy
Seeking Clarity — FY20 Result Preview
OUTPERFORM
Z Energy's (ZEL) FY20 result will be firmly&nbsp;focussed&nbsp;on the outlook, as the market seeks clarity around 1H21 and whether there will be an initial debt covenant breach. The uncertain outlook has already resulted in&nbsp;ZEL&nbsp;suspending its final FY20 dividend. The result itself should contain no surprises, with 4Q20 rescuing FY20 to some degree.

Strong 4Q20, but no final dividend

After an awful 2Q20 and 3Q20, there was a material improvement in&nbsp;ZEL's&nbsp;fortunes in 4Q20 with retail competition easing slightly and the decline&nbsp;in oil prices providing a favourable finish to the year. However, that came to a shuddering halt in the final week of the financial&nbsp;year&nbsp;with the nation going into&nbsp;lockdown&nbsp;and fuel volumes falling ~-70%.&nbsp;ZEL&nbsp;has incurred/provided for $27m of costs in FY20, resulting in the guidance range of $355m to $365m. The uncertain 1H21 outlook has also led to&nbsp;ZEL&nbsp;shelving its&nbsp;final dividend.

Banking and trading update the key focus

There is unlikely to be any surprise out of the FY20 result itself. However, the market is firmly focussed on the 1H21 outlook and whether ZEL will be able to avoid making an initial debt covenant breach at 30 September 2020 (noting a formal breach only occurs after two consecutive reporting periods). Given the uncertain outlook, ZEL has been in discussions with its working capital facility providers and debt funders, and we expect any commentary around those discussions will be critical to the market reaction on the day. Any reassurance that the covenants are less likely to be breached (or that the debt holders are willing to waive or adjust the covenants) will be viewed favourably. In addition, ZEL will have had two weeks of trading under Alert Level 3 and the recovery in fuel demand volumes post-lockdown will also be an important metric for the market.

Don't expect FY21 guidance

Given all the uncertainty ahead of it, we do not expect ZEL to provide FY21 earnings or dividend guidance. Our FY21 EBITDAF forecast is $238m (median consensus $278m) and we assume no interim dividend, with a final dividend of 20cps (consensus 11.4cps).




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





Z Energy: Seeking Clarity — FY20 Result Preview

Z Energy Ltd

Z Energy: Seeking Clarity — FY20 Result Preview