CHI - Channel Infrastructure Ltd (NZR)

[sb9]

The somewhat ironic thing about the FY result is that (except for a possible currency tailwind surprise), it really was as good as it can possibly get. But with respect to dividends, there should a lot of flexibility to raise these in the current year.

Net cash inflow last year of $264m. Most was used for investing activities (mostly Te Mihi I assume) and paying back debt. Dividends (the 5c interim) was a measly $15m. Things can pull back somewhat while still giving plenty of scope for paying out higher dividends.

With debt down considerably they should be pretty confident about paying good dividends. And the fact that they paid 25c (5c+20c) normal divvy for the FY16 show their confidence in maintaining the payout at similar levels.

[cdonald]

I expect thruput to be slightly higher than last year (Te Mihi running for a full 12 months). Last years average exchange rate was 70c, we are currently running at a 66.2 average so roughly 5% better. Margins still running at CAP.

Mar/Apr will be down due to hydrocracker top up but the shutdown is only for a couple of weeks (rather than the 6 weeks in 2014). Late ships can cause a bit of havoc sometimes but that is the nature of the beast. Remember May/Jun last year wasnt exactly stella thruput so it will be pretty easy to make it up.

Still looking at a 40c div this year in my opinion

[freddagg]

Can anyone explain how a margin of US$7.96 ends up in the capped region? There is a comment in the pdf "Note: The GRM for a period may be above or below the Cap of USD 9.00 per barrel due to previous year price updates, which are not subject to the Floor/Cap in the current year", but I don't really understand it.

I don't understand it either Cyclist but I sure would like to.

[BlackPeter]

Can anyone explain how a margin of US$7.96 ends up in the capped region? There is a comment in the pdf "Note: The GRM for a period may be above or below the Cap of USD 9.00 per barrel due to previous year price updates, which are not subject to the Floor/Cap in the current year", but I don't really understand it.

Good question - and I haven't found either the formula for applying the cap over monthly results. Might be some algorithm to iron out seasonal variations (ultimately the cap is applied over the full year). I assume that if the average margin over the full year stays below US$9, than we will get back anything which has been paid into the cap.

Still - might be a worthwhile question for the AGM ...

[cdonald]

I don't understand it either Cyclist but I sure would like to.

Just be happy that we are having conversations about CAP rather than FLOOR.

The issue of price adjustments from previous years is a pretty complex one.

[BlackPeter]

The somewhat ironic thing about the FY result is that (except for a possible currency tailwind surprise), it really was as good as it can possibly get. But with respect to dividends, there should a lot of flexibility to raise these in the current year.

Net cash inflow last year of $264m. Most was used for investing activities (mostly Te Mihi I assume) and paying back debt. Dividends (the 5c interim) was a measly $15m. Things can pull back somewhat while still giving plenty of scope for paying out higher dividends.

2015 was certainly a good year for them. However - if the stars stay aligned (oil low, currency low and increased efficiency through Te Mahi Hou paying off), than it is in my view not impossible that they still (slightly) better last years result.

However - this is not what the analysts expect. Consensus EPS for 2016 is 41.6 cts / share (i.e. less than 2015); consensus dividend 27.9 cents / share (i.e. more than last year); This would be at current SP ($3.30) a PE of 8 and a dividend yield of 8.5%; Looks conservative enough for me - and in a way I think that NZR is a good hedge against the dairy market downs.

Time to sell them might be when dairy comes back.

[Mickey]

I see the SP is down to $3.19 this morning. Do other holders see this becoming a bargain price? I suspect that the oil rally is what is putting downward pressure on the SP at the moment as well as the NZUSD rate but I don't think the rally has got much more steam in it. World wide surpluses continue to increase at a rate of 1-2 million barrels a day and higher prices could start to encourage more production, thereby exacerbating the oversupply problem. The current rally seems to be buoyed in the hope that the OPEC meeting in Qatar in April will lead to a production freeze but with Iran not expected to participate - I feel that little will be achieved. I'm picking that there's likely to be a sharp drop in oil in the coming weeks.

[BlackPeter]

I see the SP is down to $3.19 this morning. Do other holders see this becoming a bargain price? I suspect that the oil rally is what is putting downward pressure on the SP at the moment as well as the NZUSD rate but I don't think the rally has got much more steam in it. World wide surpluses continue to increase at a rate of 1-2 million barrels a day and higher prices could start to encourage more production, thereby exacerbating the oversupply problem. The current rally seems to be buoyed in the hope that the OPEC meeting in Qatar in April will lead to a production freeze but with Iran not expected to participate - I feel that little will be achieved. I'm picking that there's likely to be a sharp drop in oil in the coming weeks.

Difficult to predict the future, but given that both Russia and Saudi Arabia produced in February more oil than they agreed to in January, do I think that dropping oil prices might be well in the cards.

Not sure what's happening with the NZR share price - yes, their earnings do have some sensitivity to the oil price, but whether it is $30/bbl or $40/bbl does not make a huge difference for them ($100/bbl does, but this looks now like a faint past ...).

Obviously - a high NZD is more damaging, and as you indicated - this might be the reason for the current rally downwards.

Personally would I see for NZR at this stage more up than further down potential (due to increased efficiencies and my expectations that oil as well as NZD will stay low for years - though maybe not that low).

If these my expectations are correct, than this should make the current weakness an interesting buying opportunity. A forward PE of (now) 7.7 and a dividend yield of 8.7% (plus full imputation) is not to be spit at ...

Obviously - SP dropped now below MA200, which means that herd mentality might drive it first further down (just saying - might be worthwhile to wait for the bottom before pushing the buy button, though easy to miss the bottom as well ...).

Discl: hold;

[Jinx]

Obviously - SP dropped now below MA200, which means that herd mentality might drive it first further down (just saying - might be worthwhile to wait for the bottom before pushing the buy button, though easy to miss the bottom as well ...).

Discl: hold;

Would be predicting downwards pressure at least for the next few months. (with next months margin set to be low as well)

Discl: Happy long term holder, Divs are solid and will continue to be

[cyclist]

Would be predicting downwards pressure at least for the next few months. (with next months margin set to be low as well)

Discl: Happy long term holder, Divs are solid and will continue to be

I was about to say the same thing. I wouldn't be at all surprised to see it fall further. But likely to then rocket back up when interim results / divvies are announced (assuming everything ticks along fairly well and no major shocks on the margin front). I'll be topping up. But aren't feeling any rush to do so yet.

Disc: My biggest holding. I probably should listen to KW, Baa Baa and Hoop a bit more and sell a few when the signs are there, but so far my biggest mistakes have been the things I have sold ...