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2/3/2018 — Oil and Gas
Broker cool on Refining NZ shutdown
By Simon Hartley

A six-week maintenance shutdown of Refining New Zealand's Ltd’s (NZX: NZR) Marsden Point plant near Whangarei yesterday triggered a broker downgrade, given the unknowns of the capital expenditure involved.

Earlier this week NZR booked a solid full year 2017 result, with revenue up 16% to $411.7 million and after-tax profit up 66% to $78.5 M - on the back of average gross refining margins having lifted 24%.

However, after the results were absorbed analysts began analysing the impact of the six-week full plant shutdown from mid-April until early-June.

Brokers Forsyth Barr believe this will impact on full-year 2018 earnings.

Forsyth Barr broker Suzanne Kinnaird said the forthcoming shutdown was comparable to its shutdown in 2014 and was expected to have a $30 M impact on revenue.

A 10-day fuel pipeline disruption in September cost $8.3 M loss of revenue.

“The only other surprise within the (half year) result was the maintenance capex guidance of $80 M to $90 M, up about $15 M to $25 M ahead of the average level seen in recent periods,” Mrs Kinnaird said.

She believed NZR had taken a conservative approach to capital expenditure guidance and lifted Forsyth Barr's long-term capex assumption, up by about $13 M per annum to $75 M.

Given the material increase in maintenance capital expenditure, Forsyth Barr's discounted cash flow value declined by 50 cents per share, which flowed through to the brokers target price, which was cut by 35¢ to $2.55, while NZR's rating was downgraded from “outperform” to “neutral.”

Mrs Kinnaird said: “NZR has indicated it will have a better understanding of the maintenance capex after the May maintenance outage and we will look to update our forecast at that point in time.”

She said the brokerage had lowered its forecasts for NZR's full year 2018 after tax profit, cutting it by around $5 M to $39 M, which includes a higher foreign exchange rate between the New Zealand and US dollars and a lift in NZR's operating costs.

“While the medium-term outlook for fuel refining is generally positive, NZR is heading into a major maintenance period and there is uncertainty around future capex requirements,” Mrs Kinnaird said.

Refining NZ said the capital spending during the shutdown would be $85 M.

Over a total period of 61 days, five different sections of the plant would be closed, until the last section reopened on June 18. Marden Point will continue to produce fuel, but at less volume, which will be offset by fuel companies' importing more refined fuel, during the six week shutdown.

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

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The Marsden Point refinery.