CHI - Channel Infrastructure Ltd (NZR)

[Beagle]

The rise of the mega Asian and middle east refineries forced margins down and effectively curtailed / closed many of the smaller refineries in Australia.
With scale comes cost benefits. Future margins are in my opinion anyone's guess which makes forecasting essentially a futile exercise IMHO.
http://gulfnews.com/business/opinion...ries-1.1291537 My 2 cents. (Disc, don't own any)

[bunter]

Future margins are in my opinion anyone's guess which makes forecasting essentially a futile exercise IMHO.

Future anything is hard to guess. Maybe looking at the past can help.

This chart looks at highest and lowest prices for each year since 2006, and compares them with that year's eps.

The 2015 figure of 45c for eps is my guess - workings above.
The 2015 high and low are the figures for the first five weeks.

The chart indicates that if 2015 eps is 45c, then a typical highest price for 2015 would be $7.


Attachment 6755

[bull....]

Attachment 6757

JPM source

Bunter here some valuations of refiners if you want to compare NZR against

[bunter]

Attachment 6757
JPM source Bunter here some valuations of refiners if you want to compare NZR against

Thanks.

Using median 2015 PE, NZR's worth 9.7*45 = 4.37
Don't know if those div figures are gross or not, so can't compare.

The change in refining margin has been very sudden.
Maybe valuations of overseas refineries are lagging.

The NZR valuations vary a lot. The outlier is the present market value of $2.6

[bull....]

Attachment 6758

Asian refiners only

Yes figures probably been upgraded by now as margins are still strong and most analysts had weak margins forecast for the yr

[bunter]

Median PE of 12.65 there so value of about $6.

Thought nzr2.jpg was interesting.
The blue line has always been above the grey one... so if the price DOESN'T reach $7 in 2015 it'll be the first time in ten years that the highest price has been so low relative to eps.

[bull....]

interesting graph -based on history you would assume the same should happen but I see it fluctuated below and above probably on the different factors which affect there margins

[bull....]

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?

The crack spread and refiner stocks
Investors who are thinking of buying refiner stocks should know that one of the primary indicators of refiners’ earnings is the crack spread.
Essentially, refiners take crude oil (which generally can’t be used in its raw form) and turn it into refined products such as gasoline, diesel, and jet fuel. The crack spread represents the price difference between the finished, refined products (which translate into refiner revenues) and the price of crude oil (one of the primary factors in refiner costs). Because commodity prices can be incredibly volatile, refiners’ margins can too

NZ Refining mitigates this to some degree with the 70/30 processing fee

[/QUOTE]2. How does exchange rate effect refineries profits in different countries? Low nzd to usd mean nz becomes very good place refine?[/QUOTE]

depends on there base currency lower nzd/usd good for NZR but does not necessarily mean a better place to refine as this is based on many factors such as refinery setup and what oil they refine etc

[/QUOTE]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 [/QUOTE]

http://www.refiningnz.com/our-invest...r-project.aspx tells you about modernisation of the plant if they didn't do it it would probably close.

[/QUOTE]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[/QUOTE]

Issue	Typically Affects	Crack Spread Effect
1. Geopolitical issues — politics, geography, demography, economics and foreign policy	Crude oil supply	Crack weakens initially — higher crude oil prices relative to refined products. Crack strengthens later, as refineries respond to tighter crude oil supply and reduce product outputs.
2. Winter seasonality	Increase in distillate demand	Crack strength
3. Slower economic growth	Decline in refined products demand	Crack weakness
4. Strong sustained product demand	High refinery utilization	Crack strength
5. Environmental regulation on tighter product specifications	Tightening of product supply	Crack strength
6. Expiration of trading month	Cash market realities — long or short products	Cracks values can vary due to closing of positions
7. Tax increase after certain date	Increased sales in front of tax deadlines	Crack weakens in front of tax deadline and strengthens post deadline
8. Summer seasonality	Increase in gasoline demand	Crack strength
9. Refinery maintenance	Decline in product production	Crack strength
10. Currency weakness	Crude oil strength	Crack weakness

[bunter]

Thanks bull.....

Just thought of another risk... failure of some sort in TMH implementation.

[bull....]

nz refining sits in the grp of refiners known as complex refiners instead of a simple refiner in my opinion which means they enjoy a higher margin over a simple refiner, I believe it enjoys the advantage of supplying most of nz petrol,diesel, jet fuel needs so is not nesscessarily effected by oversupply in refining capacity unless other refiners are discounting there product which is why important to know are they competitive against imports this is why they introduced the 70/30 processing fee to stay competitive against the imports from mega refiners.
because they supply most nz the expansion should provide growth in local market as nz is growing unlike other parts of the world,migration and also low petrol price will encourage more sunday drives - more demand for petrol where they want to grow there market share anyway while conditions are now very favourable for refiners they can be very volitile as 2013 show thats why i make hay why the sun shine and not put in my bottom draw and forget about it