Z heads into first strategy refresh since founding

Monday 23rd September 2013

Newly listed transport fuels distributor Z Energy is heading into the first refresh of its corporate strategy since launching three years ago.

In an interview with BusinessDesk, chief executive Mike Bennetts said the Z board will be considering a "four to five year" horizon in the next round of strategic planning, which should start crystallising late this year, but may take much of next year to agree.

After its NZX listing on Aug. 19 at $3.50, Z has seen a healthy gain, trading today at $3.80, and has seen strong support from one private Melbourne fund manager, Cooper Investments, which has 6.5 percent of the company and has been responsible for the only two substantial security holder notices issued for Z so far.

A who's who of New Zealand funds also participated in the float, although Fisher Funds "declined the opportunity," and trading volumes of more than a million shares a week was a positive sign for the key objective of "good after-market trading" in Z shares, said Bennetts.

The company expects new research by analysts for the two float lead managers, Goldman Sachs and First NZ Capital, to emerge as they emerge from the post-float blackout period on Sept. 26, and the company due to enter the NZX50 at the end of the month, ranked around 16th in the index. That means Z will also make the NZX20, adding demand from index-weighted funds.

Bennetts would not comment on progress towards achieving the company's prospectus goal of a 16.5 cents a litre average margin on transport fuels, but said Ministry for Business, Innovation and Employment statistics showing rising importer margins did not tell the full story.

"About a third of our sites are off the generally advertised pricing," said Bennetts, given competitive discounting. However, aggressive discounting through supermarket dockets seen earlier in the year, when Mobil took over docket schemes previously run with BP, had dried up in recent months.

Z's underlying preference for improved margin over retail turnover growth remains intact, and the strategic review will look in areas such as rate of growth in new outlets, add-on services such as assisting fleet operators with fuel efficiency, and future investments in bio-fuels.

However, Bennetts says bio-fuels are only likely to be economic if there's a government incentive such as a mandated proportion of transport fuels being bio-fuels, especially with the global price of oil apparently heading to between US$60 and US$80, thanks to the shale oil and gas revolution.

Z has two bio-fuels options, the easiest to implement being a $15 million, 20 million litres annual production plant using domestically sourced tallow, which would take about a year to start running.

"A change of government or a new incentive might see us ramp up quickly," said Bennetts, but he was unaware of bio-fuels working commercially anywhere in the world without government subsidies.

The company is also committing 25 percent of the cost of a $13 million feasibility study with Kawerau pulp and paper mill owner Norske Skog, and the government's Primary Growth Partnership scheme into a wood-to-bio-fuels project.

Results are expected late next year, said Bennetts.

On transport fuels infrastructure, he identified decisions on whether to make Port of Lyttelton a deepwater destination and to reconfigure its wharves as key to increased investment in tankage for the South Island.

At Port of Tauranga, where Z has signalled a desire for more capacity, the company had the option either of building or leasing tankage from Gull Petroleum, which has constructed new 10 million litre fuel tank, which Bennetts said was not currently in full use.

The company's post-float share register puts Infratil and the New Zealand Government Superannuation Fund at 20 percent each, 25 percent retail investors, and 35 percent local and international institutions.

BusinessDesk.co.nz

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