Z Energy shares jump after cutting deal with lenders to resume dividends

Last year Z Energy said it would not pay dividends until at least October, but stronger trading meant it now expects to return money to shareholders from May. Photo / Dean Purcell

Fuel retailer Z Energy has struck a deal with its lenders which will see it able to resume dividends six months earlier than expected.

In 2020, the company struck a deal with its lenders which granted it a waiver over some of its debt covenants which saw it commit to not pay any dividends until at least October.

However, on Tuesday the Wellington-headquartered company said it had reached a deal with its banks, Trustees Executors (which supervise Z's retail bonds) and US private placement holders to renegotiate the covenant waivers allowing distributions to resume.

The company immediately indicated that it could pay a dividend for the year to March 31 of 12-14 cents a share, which it expected to declare and pay after the company releases its financial results in May.

"The stronger than originally expected performance of the business, along with the reduction in debt from the proceeds of a successful equity raise, means that Z is in a much better financial position than was expected when the relief was first sought," Z Energy said in a statement.

As well as the Z Energy chain, the company also owns the Caltex brand in New Zealand.

Shares in the company jumped nearly 6 per cent to $2.95, the highest level at which Z Energy has traded since January.

Chief executive Mike Bennetts said irrespective of trading being stronger than expected, the company had been focused on achieving $48 million in cost savings this year.

"Our execution of safe and reliable operations throughout the year has been excellent; together with better than expected profitability and strengthened balance sheet we're pleased to be able to share this performance with our shareholders," Bennetts said.

"Having navigated a challenging year we have turned our attention to options that generate additional value from the core business which will support distributions to shareholders in the years to come."

Despite stronger performance, this week Z Energy's shares dropped to $2.66, close to the levels hit in March 2020 during the height of market turmoil amid concern over the looming pandemic - the lowest the shares had ever traded since it floated in 2013.

Last week Forsyth Barr cut its target price on the company's shares by 20 per cent to $3.45 on the back of the draft Climate Change Commission report and the Government's decision "to implement a tough tailpipe emissions standard, the upshot being a material cut in long-term volumes".