ZEL - Z Energy.

[Oliver Mander]

Surely the Oil companies will just raise the price of 91 to cover the reduction in the current gains from premium fuels.
I doubt they will be very interested in taking the pain themselves.
They've never been renowned for philanthropy.

The margin history over the last 30 years shows a broad cycle - including long periods where the industry has actually taken on quite a LOT of pain on behalf of consumers (not that joe public cares; if prices are the same there is no competition and if prices are different there its confusing and anti-competitive). Historically, margins creep up to super-profit levels; followed by new entrants; followed by "slash and burn", where only the most efficient make any $; followed by margin increases again. Trick is to maintain a best-in-class cost structure through all of the cycles, while giving a great customer experience at all times.

[Beagle]

Interesting you talking about cost structure today SylvesterCat. One thing many people will not know is that Caltex have sold off a lot of their stations to franchisees and the lease obligations on them have been assigned accordingly, however ZEL still retain a contingent liability as the original party to enter into that lease should the franchisee get into financial difficulties.

One wonders with Caltex market share shrinking so much if some of those franchisees might fold up and those leases sheet back home to be an obligation of ZEL again...

[BlackPeter]

Interesting ... I see on marketwatch (https://www.marketscreener.com/Z-ENE...98/financials/) that stock market analysts significantly downgraded their future earnings estimates for ZEL, however without changing their expectations re dividends which would be then from 2020 to 2022 each year higher than the respective earnings. Just wondering whether they considered how sustainable this policy might be?

I note as well that the consensus recommendation (7.92/10 i.e. slightly above outperform towards buy) has not changed.

https://www.marketscreener.com/Z-ENE...098/consensus/

Beats me.

[Beagle]

Depreciation in their branch network is a non cash charge and they're not investing in any new stations, (recognising this is a sunset industry) which enables them to pay out more than they earn but eventually this begs the question as to whether future dividends will be fully imputed.

I don't see the recovery in EBITDA that the analysts see and seriously doubt future dividends will be at the level forecasted. For one thing there's significant capex that the Govt is demanding in terms of a major expansion in jet fuel storage at Wiri. They have threatened to legislate if the companies don't build more resiliency into the supply of jet fuel voluntarily. Even if earnings do recover as analysts are forecasting the forward PE looking out to FY21 and FY22 is not especially attractive for a no growth sunset industry company.

[Timesurfer]

Depreciation in their branch network is a non cash charge and they're not investing in any new stations, (recognising this is a sunset industry) which enables them to pay out more than they earn but eventually this begs the question as to whether future dividends will be fully imputed.

Not investing in new stations because this is a sunset industry seems a little short sighted?
Given that the capital cost invested in a few underground tanks and some pumps is relatively minimal, owning land is never a bad thing (unless you are predicting that land values will not continue to increase), which is why the non manned operators are still flat out investing in this sunset industry I would imagine. I can't see it falling over in the next 7 years which is historically the average time it takes to double your money on the land investment.

[macduffy]

Do the non-manned operators own the land or do they lease it? Z too, for that matter?

[Timesurfer]

I believe they do both.

[Davexl]

Do we have information on Sharetanks effects since November last year when everyone was gung-ho about getting around the Auckland fuel tax, and Wellingtonians were filling up in Petone. I seem to remember something about loss of market share, but wondering if this situation is likely to turn around anytime soon?

Have liquidated some of my holding after Beagles PUBLIC SELL signal, (costing me money in the short term!) but am debating about keeping some if market share improves.

[King1212]

Not looking good for Z...
https://www.cnbc.com/2020/01/30/roya...s-q4-2020.html

[Oliver Mander]

To be fair, Shell is a very different company to Z. Low oil prices are bad for Shell as their exploration arm sells oil.

On the other hand, as Z purchases refined product (made from oil), lower oil prices are generally good for Z as they carry less $ in inventory and might be able to squeeze a bit more margin from it.

Z has no exploration. While Shell has a marketing arm (like Z),that has a far more stable earnings profile, compared to selling oil. So you can't take anything from the Shell result to apply locally.