Transtasman analysts have decidedly different views on Z
Energy, the fuel and services company which lists on the NZX
Milford Asset Management senior analyst William Curtayne
favours buying the stock for its dividend yield while
Australian-based Morningstar senior research analyst Mark
Taylor recommends not subscribing to the share offer as
better entry opportunities may present later.
Z on Friday announced the issue price would be $3.50 a share,
raising $840 million. That would give a yield of around 8.7%
and price/earnings target of about 13%. The issue was open to
New Zealand residents and Australian institutions.
The price came in where Mr Curtayne predicted - at the top
end of the $3.25 to $3.75 target range - but was well above
the $3 Mr Taylor thought was reasonable.
Mr Curtayne said Z was well known in New Zealand, having
taken over the Shell operations.
''This company has done lots but this is not a growth story.
The owners have squeezed a lot out of this company but it
will provide a yield. We believe the best time to own Z is in
the first two years.''
New Zealand's equity market had been flat lately, in
comparison to others, and Mr Curtayne believed people had
been holding back their money to invest in Z and Meridian.
Z was relatively regulation-free, unlike the electricity
market which faced possible centralisation by a future
Mr Taylor said Z had many favourable attributes that would
make it an attractive investment at the right price.
Management was making proven market inroads where former
owner Shell took ''its eye off the ball''.
''It is a New Zealand company garnering Kiwi support. If more
majors outgrow enthusiasm for the small, low-growth market, Z
could be a major beneficiary.''
The 17% stake in Refining New Zealand Z would buy was a
partial hedge against the admittedly lower-risk chance of a
rise in refiner margins and dealt Z into a strategic asset,
particularly the 168km Marsden to Auckland pipeline, he said.
In some respects, the refinery tie-up was necessary,
regardless of what Morningstar thought were relatively
unattractive cash flows, to ensure continuity of supply.
Z had also driven returns on invested capital back above the
cost of capital.
Longer-term, Mr Taylor was forecasting a 10.3% return on
invested capital (roic) from 2016, healthy but not sufficient
to drive a competitive advantage.
Z Energy came from the purchase of Shell New Zealand's
downstream operations by Infratil and the New Zealand
Superannuation Fund in April 2010.