NZR have reported that the average profit from processing crude oil in the past two months fell 58% from a year earlier. The refining margin fell to US$4.06 a barrel in September and October, down from US$9.78 a year earlier and US$10.40 in July and August.
Processing fee revenue for the Year to date is $300.2 million, $34.5 million higher than that achieved for the same period in 2005. Predicted lower margins (USD4.00 to USD6.00) for November and December and a stronger New Zealand dollar should see full year processing fee income at similar levels to those of 2005.
NZR actually makes more money when the price of oil is low, than when it is high. It collects the price for refined oil, so the lower its input costs are the better its profits. Its only if demand (price) for refined products falls that you should be worried. Although if the price of crude falls equally, NZRs net position is the same.
The cost of crude oil has droped over the last week, and with it also has NZR share price, as of last Friday (05/01) it was $6.75 and closed last night a $6.10. If KW's statment is correct, whay has the SP gone down...............
After making a lot of money on these shares since I bought in at equiv. 130 cps, I sold out recently while the price was high. I came to the conclusion that the share was becoming overworked and the margin for growth on its value could not match some other securities. I shifted into RAK MVN TEL and a couple of others. I am now quids ahead of where I would have been had I remained with NZR. The bottom lin - the share is overpriced.
After making a lot of money on these shares since I bought in at equiv. 130 cps, I sold out recently while the price was high. I came to the conclusion that the share was becoming overworked and the margin for growth on its value could not match some other securities. I shifted into RAK MVN TEL and a couple of others. I am now quids ahead of where I would have been had I remained with NZR. The bottom lin - the share is overpriced.
I agree with everything that you say here Craic, except for the last sentence. A PE of less than 10 with a recent confirmation of earnings expectations is indicative of not being currently valued in the market - NOT OVERPRICED. Bloated expectations of financial return for a near monopolistic supplier.
The uncertainty surrounding the increase in capacity and hence dividend policy is only down for director resolution first qtr 2007 so I guess some holders are following your analysis and putting money to work elsewhere.
I think I worked out what has gone wrong with this company. They haven't had the where-with-all to "can" the Point Forward project when it has never had a remote chance of financial success. Zengerly and Farrant would have seen that in 2 minutes.
It is hard to see how NZR will go ahead with the $500-$700M expansion of Whangarei to process just 20pc more oil. The numbers just don’t stack up, particularly with a ceiling on processing margins. The project should have been canned as soon as the NZD went up last year. They should have sent the contractors and engineering consultants home and increased the dividend payout. We are not here to provide jobs for boys.
The only reasons for going ahead are likely to be strategic – to ensure capacity for Australia and NZ if China and the rest of Asia cannot produce enough distillate products for everyone. If the project (as my rough calculations show) doesn’t have the faintest chance of a decent financial return it should have been canned immediately – not waiting for March. The project should have been an early casualty of the government policy to support high interest rates and the high exchange rate. Import substitutions as well as exports are being treated unfavourably. NZR should have pulled the plug long ago on Point Forward and paid out an extra dividend, perhaps made a capital return - just to really make a political point.
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