CHI - Channel Infrastructure Ltd (NZR)

[dodgy]

See above tables; add 5c to eps if sustained (and the fall looks like a strong move)

As if NZR needed any more good news.
Massively undervalued, (system value 8.63 - )

My #1 pick now.

Agree Bunter

[golden city]

looks good like it..

[cdonald]

every 1c drop is worth about $3m on the bottom line. The new project should be comissioned at the beginning of December so it wont have any financial benifits for this year but will impact on next year.

[bull....]

another near 1c fall in the nzd/usd again last night

[bull....]

http://www.reuters.com/article/2015/...ssNews&rpc=408

Another oil major posted a nearly fourfold increase in there refining profits division

[bunter]

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.

[samdaman]

Hey Bunter,

Just a couple questions on your valuation.

- what discount rate did you use?
- Oil is low now but do you still expect Dividends to be 50c+ when oil creeps back up in the upcoming years?

Cheers
Sam

[bunter]

Hi Sam,
I use the current 5 yr deposit rate from interest.co.nz as the discount rate and update that periodically - it's about 5%.

I'm no kind of expert on the refining business but I get the feeling others on this thread are. NZR itself said low oil prices helped its customers and therefore helped NZR.

My guess is oil price changes will have less effect on NZR than on oil producers and explorers.

And much less effect than the exchange rate and refining margin.

To answer your question - if the ER and RM stay the same, and Te Mahi Hou expansion works out, then yes I do expect divs to be 50c plus IC, if any, even if oil prices do go up.

I'm also going to guess that current conditions are abnormally favourable for NZR - the exchange rate is nearly off the scale used on the company's profit matrix, and the refining margin IS off the scale. It seems like a perfect storm of goodness for NZR.

Bought more today.

[bull....]

the singapore crack touched a new high in january

http://www.platts.com/latest-news/oi...highs-27021832

2.55 someone keeps selling into so once they are gone should move higher

[cdonald]

Hey Bunter,

Just a couple questions on your valuation.

- what discount rate did you use?
- Oil is low now but do you still expect Dividends to be 50c+ when oil creeps back up in the upcoming years?

Cheers
Sam

To answer the part of the question on the price of oil creeping up. If refined products creep up at the same rate then the price of oil will have no impact on the profits. Yesterday oil went up 2% but refined products went up 4% effectivly making the margin higher. The refining margins are however calculated on a 2 month average so daily fluctions; whilst being interesting, are irrelevant.