Z Energy poised to reap benefit from recovery in NZ Refining's margins

Z Energy is set to feel the benefit from the recovery of New Zealand Refining's margins with the company expected to try to hold up margins as long as possible, Forsyth Barr broker Andrew Rooney says.

With NZ Refining no longer at a competitive disadvantage against imported product, the expectation had been for fuel margins to fall in the second half of the 2015 financial year.

''While that is still the expectation, the falling crude oil price is helping Z's competitive positioning,'' Mr Rooney said.

Z Energy hedged its crude oil and product imports, protecting itself from sharp falls in commodity prices, he said.

Unhedged competitors now faced receiving less at the pump than the import cost because of the time lag associated with ordering and paying for crude product and getting the crude product landed in New Zealand.

Also, the lower crude price helped make using the refinery more attractive as opposed to importing product.

Forsyth Barr had also updated its Z forecast in light of NZ Refining's improved outlook and the ''associate income'' forecast had been increased by $2 million, Mr Rooney said.

The operating earnings and improvement in NZ Refining's fortunes, as well as a reassessment of Forsyth Barr's 2015 tax assumption, had seen the normalised reported profit forecast increase by $11 million to $112 millon and the dividend forecast increase by 1.1 cents per share to 23.7cps.

There had been no material changes to the long-term forecasts, he said.

''We believe Z is well positioned for a strong second half. There are several factors working in its favour, including NZ Refining being a competitive benefit, falling crude oil prices hampering the short-term position of competitors not hedging and the second-half starting from a record high import margins.

Fuel prices fell again yesterday with 91 octane down 2c a litre to $2.16 and ultimate diesel prices at $1.47.