Quote Originally Posted by Waikaka View Post
Ahh, NZR my perennial pet loser.

Do I like a business that is super cyclical, debt ridden, needs huge capital expenditure, is a commodity producer with super uncertain future margins. Not really. But I do like it at the bottom of the cycle.

Market cap got down to ~$130 million
Debt is 238 million

Not too worried about decommissioning cost as turning it into a import terminal means that can just sit as a big rusty, expensive contaminated paper weight.

Regarding NZR land, pipeline and port facilities being worth peanuts, imagine trying to rebuild the port, pipeline tanks and how much that would cost. I don't even think it would be possible to rebuild those assets under the current RMA environment. No other feasibly way to get oil into Auckland other than RAP so it has a unreal moat. So NZR has a 'hidden' infrastructure business storing and supplying imported oil for the upper North Island (40% of all NZ demand)

In the 2020 annual report they give a hint with estimated fee income of a tolling facility being $100 million a year. I don't have a feel for operational costs to run the system but suspect it is well less than $100 million. Lets say $50 million to run, conservative price to earnings of 15 (feels cheap for what is essentially a utility/infrastructure business) that means what 750 million for the whole enterprise? At its lowest debt and market cap combined was $368 million.

Things I am worried about and add significant uncertainty:
1) Terminal conversion is a big uncertainty but we will wait and see on that one.
2) Setting tolling fees for the new terminal, I worry that NZR is too influenced by the customer shareholders even though they are less than 50% of shareholders now. Hopefully as Naomi James is from SANTOS rather than appointed from one of the shareholder customers some hard nosed bargaining will be done. Particularly around third party usage of the pipeline, badly negotiated 10 year contracts would be a significant burden if they mess up now.
3) Govt regulations. Labour seems to be flexing on a whole range of industries, particularly unpopular ones. Hopefully they don't whack NZR with a big stick to win some short term political support.

Things that would be awesome:
1) Improving margins that means the plant can generate revenue for a few more years to pay down debt before shelving the plant before its next big expense.
2) The far out there hope that the Govt decides, like Australia is talking about, that having the capability to refine oil is strategic in a national security sense and put a petrol surcharge on to make it happen or even pay to help maintain the strategic storage.

Pretty disappointed I started buying in before Covid but don't think that can be held against me. As it got cheaper and had the appearances of an underlying business that can be saved I have been buying more. Suspect it will be a few years before this business gets out of the suck.
A very interesting and sensible post agree with most of it and I definitely think the government will have to keep the refining capacity going ,no matter how P .C .they are ,the future is not really going to be what we think / told it is.