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Management had made proven market inroads where Shell took its eye off the ball. It was a New Zealand company garnering Kiwi support.
The 15% New Zealand Refining stake was a partial hedge against the admittedly lower risk chance of a rise in refiner margins and dealt Z into an undoubtedly strategic asset, particularly the 168km Marsden to Auckland pipeline, he said in a research note.
In some respects, the refinery stake was necessary, regardless of what was regarded as a relatively unattractive cash flow, to ensure continuity of supply.
Z had also driven returns on invested capital admirably back above the cost of capital and longer-term, Morningstar forecast double-digit returns on invested capital - healthy but not sufficient to drive a competitive advantage, given the potential for peers to erode competition, Mr Taylor said.
Z shares had fallen by more than 10% since January and at $6.85, now traded at a modest 9% discount to fair value.
''This is a well-supported Kiwi company where material value is seldom on offer. With a further 6% to 7% price fall from here to about $6.40, we'd consider going on the front foot.''
Morningstar had a fair value estimate of $7.50 a share.
Branding and refurbishment-driven margin improvement had gone as far as they could and now encouraged competition, he said.
Z focused on branding, location, refurbishment, Fly Buys and discount dockets.
It could decide to reform charging models with partners but Morningstar believed those could only go so far and a large share of potential gain might already have been won.
Industry consolidation had likely run its course as a value drive for Z.
The purchase of Caltex from Chevron likely marked the end of Z being able to capitalise.
Z paid an 11% improved 10.4c per share interim dividend in December and the forecast was for a second-half unchanged dividend of 20cps.
The company had said once Caltex-related debt repayments left debt no greater than two-times replacement cost earnings, dividends would increase.
The expectation was that starting from the 2019 financial year, Z would pay out 80% to 100% of net cash inflow from operating activities less maintenance capital expenditure and principal debt repayments.
The 2019 dividend estimate was 36cps, a nearly 20% jump on 2018 and corresponding to a fully imputed 5.2% yield at the current share price, Mr Taylor said.
''Despite Z's market-leading position, we retain our no-moat and high fair value uncertainty ratings. Z's mid double-digit returns are likely to be ultimately competed away given low barriers to entry with New Zealand's accessible petroleum infrastructure.''