Fuel retailer Z Energy has been out of favour with share market investors in recent times.
In November, the share price hit $5.18 - its lowest point since May 2015 - after suffering a 21 per cent decline in first half earnings and announcing a dividend that was five cents less than investors were expecting.
The stock has bounced back a little since then, trading today at $5.74.
Despite being out of favour with investors, Craigs Investment Partners has retained a "buy" recommendation on the stock, based on its assessment of Z's earnings prospects.
"We have raised our 2019 EBITDA forecast from $414m to $429m and dividend from 34c to 40c," Craigs research analyst Grant Swanepoel said in an industry update.
Z Energy suffered a poor performance in the first half because of margin compression and oil-driven negative accounting impacts, forcing management to downgrade the company's EBITDA guidance to a range of $400-435m.
"Since then the oil price has fallen, reversing the accounting impacts and easing the pressure on retail margins," Swanepoel said.
"While we have reduced our target price from $7.42 to $6.69 to reflect lower expected industry margins over time, due to upside to our target price we keep a 'buy'.
"Since last guidance, the metrics have improved," he said.
He noted that since the November guidance, the Brent oil price has fallen 35 per cent.
The retail margin has also been far stronger than anticipated – a $6m improvement on prior expectations.
This has been partially offset by the recent fall in refining margins, hence a lower Refining NZ rebate and dividend, Swanepoel said.
Refining NZ is 15.4 per cent owned by Z Energy.
Swanepoel told the Herald that it was difficult for Z Energy to manage investors' expectations given the wild swings in oil prices over the last few months.
"The organic performance of the business is improving again," he said.
Among the downside risks to its valuation and estimates, Craigs said an increase in competition could leading to lower sector margins being achieved.
A Government-ordered review of the fuel prices could also damage industry margins.
A rapid increase in oil product costs that the industry and company are unable immediately pass through to customers was another.
Another risk would be significant loss in market share to Z Energy's competitors.
Z Energy is expected to issue an operational update over the next week or two.