ZEL - Z Energy.

[macduffy]

BP have offered stacking of discounts for several years. I wonder what their experience has been and whether they have been able to gauge the effect on profitability?

[Beagle]

They'll have several years of data so will be well aware of the effect. Bearing in mind this new program has only recently started for Z stores and people only redeem stacked discounts every second month I would think ZEL are very much in the discovery phase. How much they knew about this when they last released downgraded guidance, is the key question.

[Antipodean]

I think the cost of stacking discounts is being somewhat overstated. I assume the stacking is an additional 6c (or whatever super day rate is) each time? If the stacking is exponential not addition, then it is different. However, I could not anything saying otherwise on the t&cs.

So using an addition based stacking, If you use a fuel price of $2.30, and each time ‘fill’ of 17.5 litres at a cost of $40.25, combined with a stacking discount of 6c per fill…
You would need to ‘fill’ 38-39 times to get $2.30 discount for your ‘free’ 50lt.
You’d just have to spend almost $1,600 in less than two months to achieve this.

[macduffy]

Put another way, would Z be justified in thinking that stacking hasn't adversely affected BP's profits over the years?

[Beagle]

I think the cost of stacking discounts is being somewhat overstated. I assume the stacking is an additional 6c (or whatever super day rate is) each time? If the stacking is exponential not addition, then it is different. However, I could not anything saying otherwise on the t&cs.

So using an addition based stacking, If you use a fuel price of $2.30, and each time ‘fill’ of 17.5 litres at a cost of $40.25, combined with a stacking discount of 6c per fill…
You would need to ‘fill’ 38-39 times to get $2.30 discount for your ‘free’ 50lt.
You’d just have to spend almost $1,600 in less than two months to achieve this.

4 vehicles in the family. All wait for 10 cent off days to stack. 2 Kids fill up on average once a week over 8 weeks = 16 lots of 10 cents stacked = $1.60 stacked discounts.
Mum and Dad fill up twice a week, (double fill on 10 cent stacked days) = 2 x 2 x 8 weeks = 32 stacked 10 cent discounts.
Total family discounts for two months = 48 stacked 10 cent discounts = $4.80 off a 50 litre fill. If the system is worked to their maximum advantage its possible to get 100 litres of free fuel per 2 monthly period. More over summer when they're running their jetski and boat and travelling more over holidays.

The point I am making here is a simple one. Caltex have offered stacking before Z stations have not. ZEL will have a good idea of the effect from stacking from previous customer behaviour at Caltex but have never offered it at Z stations before so there will be some compression in margins. Whether these have already been factored into the previous lowered guidance issued some time back or not is the $64,000 question ? I think the risk is they haven't and the additional risk is that (because it can't be quantified at this stage), the effect if any of any possible program(s) the Govt may initiate as part of their fuel review have also not been factored into the previous forecast.

The risk appears to be to the downside and based on hard experience over many years, downgrades usually come in 3's.

For those that think ZEL are already on top of all the issues the present forecast yield at mid point of forecast of 49 cents in annual fully imputed dividends is sustainable = 49 / 0.72 = 68.05 cps gross / $5.52 = 12.3% gross yield, fill ya boots !

[Antipodean]

Using the 10c days will get you there quicker, agreed. A heavy use family as per example can certainly take advantage in the limited time frame. How many families can and will do this?

Even at max advantage you are buying 48 * 20l = 960l of undiscounted fuel to get those 2 X 50l freebees. So 1060l for the price of 960l - your discount is about 10% in reality.
Depending on how people choose, going to Z to take advantage could see an increase in market share which could well offset any change in margin.

On the regulatory side I believe the uncertainty is already priced in. If, as I suspect, there are no major changes post final report, this may show an effect in the opposite direction.
I do suspect in the short term the div yield may be affected but not in the medium-long term.


As a side note any discount above the current fuel cost will be cleared when the stacked discount is used.
So you may want to advise the example group to use the discount as soon as it hits the current price for maximum effect.... not wait until $4.80 is stacked.

Is there a limit to the discounts I can stack?
No, there's no limit! But if you do happen to accumulate more fuel discounts than the pump price per litre, you will lose the over-accumulated amount as your balance is cleared to zero every time you redeem. For example, if you accumulate a $2.10 per litre fuel discount but only pay $2.00 per litre at the service station, the extra 10 cents per litre discount will also be cleared from your card. Don't forget your discounts expire the month after you stack your discount.

[RTM]

Using the 10c days will get you there quicker, agreed. A heavy use family as per example can certainly take advantage in the limited time frame. How many families can and will do this?

Even at max advantage you are buying 48 * 20l = 960l of undiscounted fuel to get those 2 X 50l freebees. So 1060l for the price of 960l - your discount is about 10% in reality.
Depending on how people choose, going to Z to take advantage could see an increase in market share which could well offset any change in margin.

On the regulatory side I believe the uncertainty is already priced in. If, as I suspect, there are no major changes post final report, this may show an effect in the opposite direction.
I do suspect in the short term the div yield may be affected but not in the medium-long term.


As a side note any discount above the current fuel cost will be cleared when the stacked discount is used.
So you may want to advise the example group to use the discount as soon as it hits the current price for maximum effect.... not wait until $4.80 is stacked.

Is there a limit to the discounts I can stack?
No, there's no limit! But if you do happen to accumulate more fuel discounts than the pump price per litre, you will lose the over-accumulated amount as your balance is cleared to zero every time you redeem. For example, if you accumulate a $2.10 per litre fuel discount but only pay $2.00 per litre at the service station, the extra 10 cents per litre discount will also be cleared from your card. Don't forget your discounts expire the month after you stack your discount.

I hate these schemes. And I hate bundling as well. As Trustpower (data/power/gas) and Spark (telecon / Netflix) try to do.
Just give me a fair price and let me choose where I want to shop.

[Antipodean]

I hate these schemes. And I hate bundling as well. As Trustpower (data/power/gas) and Spark (telecon / Netflix) try to do.
Just give me a fair price and let me choose where I want to shop.

In general, I agree. I usually don't pay any attention but in this case am invested in ZEL so seek to understand how they work and may/may not influence behaviour.
For me regarding fuel, I have a 10l tank which I fill once per week - so a few $0.06 here and there are not worth fussing over.

[Beagle]

Using the 10c days will get you there quicker, agreed. A heavy use family as per example can certainly take advantage in the limited time frame. How many families can and will do this?

Even at max advantage you are buying 48 * 20l = 960l of undiscounted fuel to get those 2 X 50l freebees. So 1060l for the price of 960l - your discount is about 10% in reality.
Depending on how people choose, going to Z to take advantage could see an increase in market share which could well offset any change in margin.

On the regulatory side I believe the uncertainty is already priced in. If, as I suspect, there are no major changes post final report, this may show an effect in the opposite direction.
I do suspect in the short term the div yield may be affected but not in the medium-long term.


As a side note any discount above the current fuel cost will be cleared when the stacked discount is used.
So you may want to advise the example group to use the discount as soon as it hits the current price for maximum effect.... not wait until $4.80 is stacked.

Is there a limit to the discounts I can stack?
No, there's no limit! But if you do happen to accumulate more fuel discounts than the pump price per litre, you will lose the over-accumulated amount as your balance is cleared to zero every time you redeem. For example, if you accumulate a $2.10 per litre fuel discount but only pay $2.00 per litre at the service station, the extra 10 cents per litre discount will also be cleared from your card. Don't forget your discounts expire the month after you stack your discount.

10% doesn't sound like much does it ? But 22 cpl its probably more than ZEL's entire retail margin.

[Antipodean]

10% doesn't sound like much does it ? But 22 cpl its probably more than ZEL's entire retail margin.

It is a maximum potential, rather than expected average, discount for the scheme. There is also the possibility of store purchases in those 48 visits every two months.

That being said, thinking of it as being up to 22cpl discount means it (total discounting) will be something to closely watch even for a believer like me.