CHI - Channel Infrastructure Ltd (NZR)

[dodgy]

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

Darn good effort Bunter ! I guess there will always be shutdowns / time to transfer production to new more efficient and trouble free kit , scheduled maintenance etc. At a guess you would be having to allow 2 weeks or more downtime per year or thereabouts. Have you factored the new profit stream for the co2 conversion plant, and the lease arrangement for the stored platinum, converter material ?
-d

[bunter]

At a guess you would be having to allow 2 weeks or more downtime per year or thereabouts. Have you factored the new profit stream for the co2 conversion plant, and the lease arrangement for the stored platinum, converter material ?
-d

Platinum effect was small, 500k p.a., but have added it.
Couldn't find any projections on CO2 revenue (anyone know?) but non-refining income seems important for growth, as refining income is capped.

More significantly, I just noticed that NZR forecasts $16m reduction in expenses in 2014 - so have changed my 229m to 213m (with 2% growth per annum for 2016 et seq).

Sadly with fixed income and rising expenses, the profit will come under pressure eventually, and the s/s shows this. Expenses are going down for now but I have assumed conservatively (for once) that they'll grow.

NZR seem to be looking under every rock for efficiencies and extra income with about 20 initiatives in progress. The company seems pretty well managed and I'm wondering if it might do better than expected.

	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	372.8	399.0	399	399	399	399	399
Pipeline	57	57	57	57	57	57	57
Total rev	430	456.0	456	456	456	456	456
Income	430	456	456	456	456	456	456
exp 1	213	217.26	221.61	226	230.6	235.17	239.9
int 2	16.9	14.7	12.3	9.9	7.5	5.2	2.9
EBT	199.85	223.998	222.07	220	217.9	215.64	213.3
tax	56	63	62	62	61	60	60
NPAT	144	161	160	158	157	155	154
eps after tax	0.460	0.515	0.511	0.506	0.501	0.496	0.491
eps before tax	0.638	0.716	0.709	0.703	0.696	0.689	0.681
div payout %	75%	80%	85%	90%	90%	90%	90%
div cps	0.345	0.412	0.434	0.456	0.451	0.446	0.442
ret. Earns	36.0	40.3	40.0	39.6	39.2	38.8	38.4
debt 3	290	254.0	213.7	173.7	134.1	94.9	56.1
Gross yield	18%	22%	23%	24%	24%	24%	24%

Net effect of all the above is a similar valuation - 6.67 max - with rising expenses balancing out the positive changes.

[dodgy]

Thanks Bunter
Time will tell.
-d

[bull....]

Lets hope the company starts paying a div when it reports a modest 2 - 3 cps should be affordable and welcomed by long suffering shareholders on a 10mil profit

[golden city]

slim hope for a dividend i think.., but a good forecast go with the report ..will boost the share price with a dividends forecast ahead

[dodgy]

slim hope for a dividend i think.., but a good forecast go with the report ..will boost the share price with a dividends forecast ahead

Agree GC, dividend should probably not be reinstated until after expansion is commissioned ie late Feb 2016 . Funds better spend paying down borrowings for balance of calender 2015. Share price still should be north of $3 by March 16.
-d
Discl: Holding above 50k shares and happy to sit tight

[Joshuatree]

Thanks bunter for sharing all your research.

[NZSilver]

Hi bunter and others I'm just looking at your numbers/posts and have been following this thread. A few questions you and others may be able to help me with;

1. In your numbers above are the $9 margins likely to continue? And what is the main variable driving this? Exchange rate?
2. How does exchange rate effect refineries profits in different countries? Low nzd to usd mean nz becomes very good place refine?
3. Is the marsden point refinery world class? Or would it be considered not the most efficient and lacking the latest technology eelative to other refinearies around the world. Or is it a bit like nz aluminium smelter (now outdated and inefficient compared to world standards) I do note the upgrade which will make things more efficient
4. What are the major industry impacts that would substantially change your above estimates (ie not a complete blow out like a world war or something crazy). As looking above this stock seems dirt cheap and a great yield play based on low interest rates and possible divs

I know these questions may seem rather simple, however I'm just trying to understand an industry I know little about. Thanks for all the good info you have shared everyone.

Cheers

[BlackPeter]

Hi bunter and others I'm just looking at your numbers/posts and have been following this thread. A few questions you and others may be able to help me with;

1. In your numbers above are the $9 margins likely to continue? And what is the main variable driving this? Exchange rate?
2. How does exchange rate effect refineries profits in different countries? Low nzd to usd mean nz becomes very good place refine?
3. Is the marsden point refinery world class? Or would it be considered not the most efficient and lacking the latest technology eelative to other refinearies around the world. Or is it a bit like nz aluminium smelter (now outdated and inefficient compared to world standards) I do note the upgrade which will make things more efficient
4. What are the major industry impacts that would substantially change your above estimates (ie not a complete blow out like a world war or something crazy). As looking above this stock seems dirt cheap and a great yield play based on low interest rates and possible divs

I know these questions may seem rather simple, however I'm just trying to understand an industry I know little about. Thanks for all the good info you have shared everyone.

Cheers

OK - looks like nobody wants to pick this up, so I will give it a go. Firstly - outstanding questions ... and hey - I am no oil expert and my crystal ball is cloudy, so please take my response with a grain of salt ... and as usual: Do Your Own Research! Hope others can fill the gaps & correct me where I am wrong.

Re 1):
If we look at the last 15 years, than it looks like NZR is sort of moving in a 10 year cycle. SP (and I suppose margin) was low / average between 2000 and 2005, high between 2005 and 2010 and average / low between 2010 and 2015. Not a statistically relevant data sample, but maybe its now again 5 good years?

Drivers for the refining margin are mainly the laws of supply and demand. If refineries have spare capacity, the margins go down, if they haven't, the margin goes up. Due to the low margin over the last 5 years there have been a number of closures of refineries - read recently something along these lines about Australia, but am sure, that the rest of the world did the same thing. Remember - we had rather high oil prices and everybody was trying to save oil and petrol ... no reason for building additional refining capacity.

Thanks to first the US going shale oil and than the Saudis starting to pump we have now low oil prices and increasing demand. Takes a number of years (say in average five - this would confirm the cycle above?) from noticing increased demand to having a new refinery up and running.

So I guess - if the oil price stays down, than we probably could expect refining margins to stay high ... until new refineries come on line. If we (or better the people building refineries) however believe that oil is now in the end game (and the Saudis keep pumping cheap oil until nobody wants it anymore), than it is likely that not too many want to invest now into a new refinery, which could keep the refining margins up for longer (well, until the world changed completely to electrical cars, trucks, planes and trains).

Re 2) yes - low USD compared to local currency is good for local refinery (as long as the USD is the benchmark for the margin)

Re 3) Don't know, but would assume that (after the upgrade) it is quite modern.

Re 4) Anything reducing the global oil consumption and / or increasing refinery capacity would be bad for NZR's earnings;

[bunter]

Hi bunter and others I'm just looking at your numbers/posts and have been following this thread. A few questions you and others may be able to help me with;

1. In your numbers above are the $9 margins likely to continue? And what is the main variable driving this? Exchange rate?
2. How does exchange rate effect refineries profits in different countries? Low nzd to usd mean nz becomes very good place refine?
3. Is the marsden point refinery world class? Or would it be considered not the most efficient and lacking the latest technology eelative to other refinearies around the world. Or is it a bit like nz aluminium smelter (now outdated and inefficient compared to world standards) I do note the upgrade which will make things more efficient
4. What are the major industry impacts that would substantially change your above estimates (ie not a complete blow out like a world war or something crazy). As looking above this stock seems dirt cheap and a great yield play based on low interest rates and possible divs
I know these questions may seem rather simple, however I'm just trying to understand an industry I know little about. Thanks for all the good info you have shared everyone.
Cheers

I'm just guessing.
1) There seems to be a $2 buffer on refining margin now - see prev posts - so I'm hoping the capped margin of $9 will last for at least a year.
Margins can change very quickly.
As BlackPeter and NZR both say - refining is a long cycle business. I'd expect margins to go under the cap at some point.

What's a good guess at average margins for the next 7 years - $7.5?

2), 3) Don't know.
4) Will be watching the refining margin, exchange rates, and also NZR's non-refining revenue - which is its big hope, along with cutting expenses, for growth.