CHI - Channel Infrastructure Ltd (NZR)

[golden city]

2.55 seller is gone i think..., looks brighter

[bull....]

NZD just fallen another 1.5c after aust reserve bank drops interest rates - good for NZR

[dodgy]

NZD just fallen another 1.5c after aust reserve bank drops interest rates - good for NZR

Hi all
The Kiwis fall is going to improve NZR's result next 1/2 year - probably not in the latest report coming shortly, what with margins quoted in $US and from memory most of the new upgraded kit already being paid for - also in US $. Predictions for next year are looking very achievable.
-d

[cdonald]

I posted this on the '10% plus dividend payers' thread a week or two ago (as a 20% plus payer) but have decided to revise for the 5c fall in exchange rate since, and post here.


Expected profit for the y.e. 31/12/14 is 3 cps.

Using the profit matrix here, and dividing by shares on issue gives the following EPS-AT table

	ex rate		EPS matrix
margin $/bbl	70	75	80	85
4	0	0	0	0
5	10	6.7	4.5	0
6	19	16	13	10
7	28	24	21	17
8	39	38	33	29
9	47	42	37	32
10e	55	50	45	40

The bolded figures are the current ones.
Tailwinds for NZR include low oil prices, increased petrol consumption, high refining margins, low exchange rates, Te Mahi Hou expansion, and active management bringing in many efficiencies.
As noted above, Chevron's refining division just announced a fourfold increase in profits in the most recent quarter.

The expansion Te Mahi Hou supposedly comes online in Dec 2015 and by NZR estimates will add 14cps to NPAT.

Given current margin and exchange rates, and 5% inherent growth in earnings:

	30/12/14	15	16	17	18	19	20	21	22	23
EPS-AT	0.0	52.0	54.6	57.3	60.2	63.2	66.4	69.7	73.2	76.8
epsAT, TMH	0.0	0.0	14.0	14.7	15.4	16.2	17.0	17.9	18.8	19.7
total EPS-AT	0.0	52.0	68.6	72.0	75.6	79.4	83.4	87.6	91.9	96.5
DPS, net	0.0	39.0	51.5	54.0	56.7	59.6	62.5	65.7	68.9	72.4
Gross div yield	0%	22%	29%	30%	32%	33%	35%	36%	38%	40%
Growth rate	5%
Div pmt rate	75%
Sh price	$ 2.50

Notes:
NZR might not pay such a high percentage in dividends, given that it's spending so much on TMH.
This report forecast debt to peak at 240m in 2015.
TMH would almost pay for itself by 2018 - still leaves 50c gross for dividends.

NZR planned to pay off all debt by 2020, but maybe they'll run with some debt, given interest rates are low.

These figures seem too good to be true. My dividend flow model gives a value of 9.21
As a double check, Benjamin Graham’s valuation method, V=eps*(8.5+2Growth), gives a valuation of 52*(8.5+10) = $9.62

Even if the market is skeptical, seems more likely that the price will go up than down.

Bunter, The highest average margin that the refinery can have over the period of 12 months is $9USD/bbl due to the CAP in the processing agreements. In saying that, if you do a rough calc of 1.2mbbl per day at $9USD divided by the exchange rate of .72 and then multiply the whole lot by .7 (processing agreement) you get refining income of 473m NZD. Add on the pipeline and you get about 510m in income for the year.

The cap goes hand in hand with the floor (floor came into play in first six months of the last financial year) so if the first 2 months of the year the margins are over $9USD bbl, that money is "banked" for later in case margins drop below the $9usd bbl.

Just something to build into your spreadsheet.

[bunter]

Bunter, The highest average margin that the refinery can have over the period of 12 months is $9USD/bbl due to the CAP in the processing agreements. In saying that, if you do a rough calc of 1.2mbbl per day at $9USD divided by the exchange rate of .72 and then multiply the whole lot by .7 (processing agreement) you get refining income of 473m NZD. Add on the pipeline and you get about 510m in income for the year.

The cap goes hand in hand with the floor (floor came into play in first six months of the last financial year) so if the first 2 months of the year the margins are over $9USD bbl, that money is "banked" for later in case margins drop below the $9usd bbl.

Just something to build into your spreadsheet.

Thanks - my valuation is too high then - will revise.

Also, as you pointed out, the assumption that NZR will pay tax could be wrong - i.e. their 'NPAT' matrix could be based on no tax.
In previous years they certainly paid tax, and fully imputed dividends - I'm still unclear on whether their 2015 dividends (if any) will be carry ICs.

[golden city]

waiting for the 2.60 breakout....which i guess will be soon

[dodgy]

Thanks - my valuation is too high then - will revise.

Also, as you pointed out, the assumption that NZR will pay tax could be wrong - i.e. their 'NPAT' matrix could be based on no tax.
In previous years they certainly paid tax, and fully imputed dividends - I'm still unclear on whether their 2015 dividends (if any) will be carry ICs.

Hi Bunter and all
Happy NZ/Waitangi Day,
The best way to firm up your valuations re tax etc. for NZR is to contact the company secretary. As a shareholder (owner) they are bound to provide you with this type of info but if not a shareholder then you will probably be given this anyway. Facts are the best remedy for doubts.
-d
I still hold to my guestimate share price of north of $3 by March 2016 - 15.4% on current price $2.60 without any divs. which should give all up a return of 18% for a year - worth a dip in?

[bunter]

Have reworked NZR profit estimates taking account of:

1) Cap at $9 for processing fee
2) 3m barrel / yr increase from Te Mahi Hou from 2016 on - http://www.refiningnz.com/media/8057...tory_notes.pdf
3) 0% growth thereafter - with plant at capacity and cap in place (as assumed)
4) Retained earning pay off debt
5) Minimal capex for the next few years.

NPAT 15e - source post NZR:555
	15 e	16 e	17	18	19	20	21
MBPD 4	0.117	0.125	0.1249	0.125	0.125	0.1249	0.125
PF $USD	9	9	9	9	9	9	9
ER	0.72	0.72	0.72	0.72	0.72	0.72	0.72
Op. days/yr 5)	365	365	365	365	365	365	365
Scale factor	0.7	0.7	0.7	0.7	0.7	0.7	0.7
RefiningRev	372.75	399	399	399	399	399	399
Pipeline	57	57	57	57	57	57	57
Total rev	430	456	456	456	456	456	456
Income	430	456	456	456	456	456	456
exp 1	229	229	229	229	229	229	229
int 2	17.4	15.4	13.1	10.8	8.5	6.1	3.7
EBT	183.35	211.6	213.87	216.2	218.5	220.87	223.3
tax	51	59	60	61	61	62	63
NPAT	132	152	154	156	157	159	161
eps after tax	0.422	0.487	0.492	0.497	0.503	0.508	0.514
eps before tax	0.586	0.676	0.683	0.691	0.698	0.706	0.713
div payout %	75%	80%	85%	90%	90%	90%	90%
div cps	0.316	0.389	0.418	0.448	0.452	0.457	0.462
ret. Earns	33.0	38.1	38.5	38.9	39.3	39.8	40.2
debt 3	290	257.0	218.9	180.4	141.5	102.2	62.4
Notes
1) Expenses were only 100.5m in H12014; is $201m/a possible?
2) 290m assumed at 6%
3) Capex not estimated; assumed added to debt.
4) Nov/Dec 7.1 mbbl = .117mbbl/day
5) Shutdowns not known.

Gross yield

17%

21%

22%

24%

24%

24%

25%

Dividend flow valuation now $6.66
Benjamin valuation v = eps*(8.5+2g) - let's say 50*(8.5+0) = $4.25

Expenses savings could add $20m to profit before tax.

[BlackPeter]

Hmm - so this is the "everything turns out perfect for shareholders over the next 7 years" scenario, though even for that would I think is it highly unlikely that they manage to run their operation for 7 years without any shutdown. How many shutdowns did we have last year - 2 or 3?

I guess to make this a bit more realistic - I'd assume at least 2 to 3 weeks of shutdown every year - and a 5 to 7 year cycle looking at the refining margin. Say 2 years running into the ceiling, 3 years at "medium" rates and 2 years scratching the bottom.

Don't forget either that it might be next time around more difficult to satisfy the unions. They just love to dig their teeth into large profits (meaning either higher staff cost or longer downtimes times, probably both).

Haven't worked out the resulting "fair" SP, but I reckon that this would bring us reasonably close to what it currently is.

Still - holding and expecting an outrageously good 2015 (and hoping for a good 2016 as well), but what comes after that - who knows?

[bunter]

Te Mahi Hou will lift current processing fees by $1.10 - i.e. today's $10 becomes $11.10 - and so can still fall $2.10 before hit hits the cap.
As I understand it.

So maybe 2015 and 2016 look good.

Ex rates - who knows?

As for shutdowns - were there any in Nov or Dec 2014? I used those figures to give the daily throughput, so if there were shutdowns the daily figure needs to be increased,

IME the market seems to give undue weight to present-day conditions; so prices overshoot and undershoot.

Here's what my spreadsheet gives for div flow valuation if the PF is constant for 10 years.
The present PF is effectively $11, post TMH.

PF	Value
11	6.66
10	6.66
9	6.66
8	5.24
7	3.82
6	2.4
5	0.99