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4/5/2018 — Oil and Gas
Strong profit gain for Z Energy
By Simon Hartley

Fuel retailer Z Energy Ltd (NZX & ASX: ZEL) has booked a $20 million gain in after-tax profits, rising 8% for its year to March to $263 M.

The profit boost, including from a 14% increase in refining profit margins, comes hard on the heels of a leaked email this week of competitor BP. A BP manager outlined regional pricing structures, in the hope competitors would also raise prices, Stuff reported.

The issue prompted Energy Minister Megan Woods to schedule a meeting with BP yesterday to explain the pricing strategy.

However, BP's result yesterday did not directly address the BP email issue, but said the most likely outcome of last year's Fuel Market Study would be a Commerce Commission market review once the relevant legislation was passed later this year.

BP's view was a market review would likely to find a competitive market, working effectively with customers having a wide range of price choices.

“Most intense discount areas have shifted out of high population trading areas in line with an increase in new sites from regional distributors,” the Z Energy financial report said.

The company, which also operates the Caltex outlets, saw revenue surge 18% from $3.86 billion to $4.57 B from a year ago.

Z Energy's dividend rose 10%, from 19.9 cents a year ago to 21.9¢, the total 2018 dividend being 32.3¢.

Replacement cost operating earnings before interest, tax, depreciation and financial adjustments - a measure Z Energy uses to strip out the changing value of inventory - rose 13% to $449 M; within January guidance which was cut by about $20 M because of a pipeline failure rising cost of crude oil, BusinessDesk reported.

Petrol sales were slightly down on last year but diesel and aviation fuel sales were up and non-fuel revenue also rose.

Craigs Investment Partners broker Peter McIntyre said cost blowouts during the past financial year were offset by the strong fuel margins.

He highlighted Z Energy had taken over a Mobil contract to supply 53 New World and Pak N Save supermarkets, a $150 M contract, starting in September this year.

However, McIntyre added a caution, noting 60 new sites had been built by competitors in the past two years, raising concerns for Z Energy over capitalisation during a period of uncertain longer-term demand.

Z Energy expected operating earnings next year in a range of $450 M to $485 M, with McIntyre estimating $480 M.

Forsyth Barr broker Damian Foster said the key focus of the full year result was going to be guidance on the full year 2019 dividend; which Z Energy delivered within “our” expectations.

Z Energy indicated the 2019 dividend would be in a range of 50¢ per share to 55¢, with Foster expecting it to be at the top end of the range, at 55¢.

“Overall, a result that was in line with expectations and a full year 2019 outlook that is delivering on the expected dividend increase,” Foster added.

*Simon Hartley is senior business reporter and assistant chief reporter for the Otago Daily Times.

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