Z Energy confirms NZX listing plan

Infratil and the New Zealand Superannuation Fund bought the business from Shell in 2010 and are now preparing it for an NZX listing.  Photo / Dean Purcell
Infratil and the New Zealand Superannuation Fund bought the business from Shell in 2010 and are now preparing it for an NZX listing. Photo / Dean Purcell

Gas station chain Z Energy has confirmed this morning that it is being prepared for a sharemarket listing by its main shareholders, Infratil and the NZ Super Fund.

"While no firm decisions have been made, and any listing will depend on market conditions at the time, we have asked Z Energy to work towards a possible listing of 40pc - 60pc of the company in the third quarter of 2013," the parties said in a joint statement.

Z Energy was purchased by Infratil and the Super Fund from global energy giant Shell in 2010 for $696.5m, with each party taking a 50 per cent share.

"At the time of purchase Z Energy had the challenge of transitioning off the Shell global platform, new capital investment priorities and the challenge of executing a countrywide rebranding," said Infratil CEO Marko Bogoievski.

"Now, nearly three years on, these have been met, and Z Energy has strong cash-flows, a good dividend outlook and growth options, which would suit a wider investor audience."

Z is one of the "big two" of New Zealand transport fuel retailing, duking it out with BP New Zealand and accounting for around 30 per cent of all sales in the local market.

At its last earnings report, for the half year to September 30, Z reported a 42 per cent drop in after-tax profit to $24.9 million, reflecting intense competition in the sector and a willingness to sacrifice total sales volumes to maintain margins.

Its chief executive, Mike Bennetts, has adopted a strategy from Z's inception of arguing publicly that New Zealand needs fuel prices high enough to ensure adequate investment in its sometimes creaky distribution and storage network, and that profit margins in the business are wafer-thin.

The company has also undertaken vigorously promoted rebranding and quickly established Z as a top of mind brand for consumers, with an emphasis on the fact it is New Zealand-owned and contributing to future pensions.

Z also announced this morning it was dropping the price of 91 octane petrol 3 cents a litre and diesel by 2 cents a litre amid calls from the motoring lobby for local petrol providers to cut prices in response to recent falls in global crude oil prices.

Matt Whineray, spokesperson for the Super Fund, said the listing would be beneficial for New Zealand's capital markets.

"The Fund's investment in Z Energy has performed well, with the asset benefiting from increased capital investment, strong branding and a focus on customer service," he said.

"As a result, Z Energy now represents a larger proportion of the Fund than it did at the time of purchase, and a partial listing appeals to us as a way of diversifying our investment portfolio."

As at January 31 this year, Z Energy was the $21 billion Fund's second-largest New Zealand investment, making up 2.4 per cent of the total Fund.

Both parties confirmed that, while no final decisions have been made, at this point they would be likely to retain stakes in the company of between 20 per cent and 30 per cent each.

NZX chief executive issued a statement welcoming the Z plan, saying:

"While the Government's share offer programme is a critical component of rebuilding our equity market, as one of the smallest share markets in the developed world relative to the size of our economy, the listing of other large New Zealand businesses also has a key role to play.

"We hope the example set by the NZ Superannuation Fund and Infratil will encourage the owners of other large New Zealand businesses to consider listing."

Analysts said last month that Z's petrol business could be valued at up to $1.2 billion potentially putting it in the top 20 largest companies on the New Zealand exchange.

When market chatter about a possible Z Energy listing was circulating last month, analysts were speculating on which assets could be sold, he said.

Grant Swanepoel, an analyst at Craigs Investment Partners, said Infratil needed to consider unlocking the value from some of its investments and listing Z Energy on the sharemarket would be one way to do that.

"It does make sense. Doing it now would take advantage of the favourable market conditions."

Swanepoel said Infratil and the Super Fund had bought the business at the bottom of the valuation cycle when its rival Caltex was trading on four times earnings.

Caltex was now trading on six times earnings and on top of that Infratil had also cleaned up the business.

As well as rebranding the business from Shell to Z Energy, Swanepoel said there had been a lot of changes on the forecourts with lucrative car washes added to some stations and many of the poorer contracts replaced.

The company had around $400 million of debt and Swanepoel said he would expect a net yield of around 6 per cent, making it attractive to retail investors.

That could value the company at between $1.2 billion to $1.4 billion, he said.

Forsyth Barr head of research Rob Mercer said the acquisition of Shell had not been well liked by some in the market and the company had spent a lot of time convincing people that it was a good idea.

Since then a new chief executive had been appointed and a strong management team had been put in place.

"I think that people would have confidence around the management of the business given the work that has been done."

Mercer said good management was a key factor in attracting investors.

"Ultimately a listing at some point is something that is anticipated."

Mercer believed Infratil's half share in Z Energy was worth $400 million and if it was sold it would be a significant gain on the $225 million Infratil paid for its share.

Rickey Ward, head of equities at Tyndall Investment Management, said last month he had never been keen on the Z Energy business and it could be harder for investors who bought into the float to make a gain.

"It's easy to make gains initially - it's hard to make the gains thereafter."

Ward said he expected any float would be marketed with a dividend yield focus to target retail investors looking for a better return on their money than in the bank.

Hamilton Hindin Greene client adviser James Smalley said last month that Z Energy would be a name potential investors would be familiar with but he questioned where growth would come from given the oligopoly in the oil market and tough competition. "It might be good with yield. But where is the growth coming from?"

Smalley said it would also matter how much skin Infratil and the Super Fund kept in the game through holding on to part of the business.

"I think they will have to, to get investors to take it up. I think investors will be looking for that, not a cashing up of all the chips."


Z Energy supplies around 30 per cent of New Zealand's fuel. It owns and manages businesses including 17.1 per cent of Refining NZ, which runs New Zealand's only fuel refinery; a 25 per cent stake in Loyalty New Zealand which runs Fly Buys; over 200 retail sites; around 90 truck stops; and pipelines, terminals and bulk storage terminal infrastructure around the country.

Tamsyn Parker / NZ Herald / BusinessDesk

- NZ Herald

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