Transtasman analysts have decidedly different views on Z Energy, the fuel and services company which lists on the NZX this morning.
Milford Asset Management senior analyst William Curtayne favours buying the stock for its dividend yield while Australian-based Morningstar senior research analyst Mark Taylor recommends not subscribing to the share offer as better entry opportunities may present later.
Z on Friday announced the issue price would be $3.50 a share, raising $840 million. That would give a yield of around 8.7 per cent and price/earnings target of about 13 per cent. The issue was open to New Zealand residents and Australian institutions.
The price came in where Curtayne predicted - at the top end of the $3.25 to $3.75 target range - but was well above the $3 Taylor thought was reasonable.
Curtayne said Z was well known in New Zealand, having taken over the Shell operations.
"This company has done lots but this is not a growth story. The owners have squeezed a lot out of this company but it will provide a yield. We believe the best time to own Z is in the first two years."
New Zealand's equity market had been flat lately, in comparison to others, and Curtayne believed people had been holding back their money to invest in Z and Meridian.
Z was relatively regulation-free, unlike the electricity market which faced possible centralisation by a future Labour-Green government.
Management was making proven market inroads where former owner Shell took "its eye off the ball".
"It is a New Zealand company garnering Kiwi support. If more majors outgrow enthusiasm for the small, low-growth market, Z could be a major beneficiary."
The 17 per cent stake in Refining New Zealand Z would buy was a partial hedge against the admittedly lower-risk chance of a rise in refiner margins and dealt Z into a strategic asset, particularly the 168km Marsden to Auckland pipeline, he said.
In some respects, the refinery tie-up was necessary, regardless of what Morningstar thought were relatively unattractive cash flows to ensure continuity of supply. Z had also driven returns on invested capital back above the cost of capital.
Longer term, Taylor was forecasting a 10.3 per cent return on invested capital from 2016, healthy but not sufficient to drive a competitive advantage.
