The New Zealand Refining Company

By Dan Stratful

Monday 14th May 2012

The New Zealand Refining Company (NZX: NZR ) holds a monopoly position as New Zealand's only oil refinery situated at Marsden Point, near Whangarei. NZR supplies around 83% of NZ’s jet fuel, 84% of all diesel, 70% of all petrol, 80% of all bitumen for roading in addition to sulphur for farm fertilisers. NZR’s major shareholders include BP, Exxon Mobil, Chevron and Aotea Energy (a 50/50 JV between Infratil and the New Zealand Super Fund)

NZR reported an after tax profit of $34.5 million in the year to 31 December 2011 (FY11) which was down 40% on the $57.7 million it reported in FY10. FY11 saw a challenging business environment and a slump in the refiners' margin towards the end of the year.

A product outturn of 33.1 million barrels was achieved in the year (FY10: 34.2 million barrels) and progress was made towards its Growth Project, which aims to deliver a significant increase in intake volumes and refining margins in the years ahead, which should then lead to increased revenue, profitability and dividends.

Weakness in global refineries reflects weakness in the global growth outlook, however NZR intends to support a $365 million outlay to expand and update its petroleum processing units in the years ahead.

The refining sector is experiencing volatile refining margins fueled by a combination of volatile oil prices, political events in the Middle East and foreign exchange rates, and another lower result is expected by Analysts in FY12.

Investors can take comfort in NZR’s substantial shareholders which includes the New Zealand Super Fund and several international oil giants, however for the time being, other sectors are preferred.

Status: AVOID

NZR’s shares today traded at $2.72

For portfolio, sharemarket and fixed income enquires contact:
Dan Stratful at Investment Research Group (IRG)
Authorised Financial Adviser (AFA)
0800 437 8489, 09 304 0232, dan.stratful@irg.co.nz
**A disclosure statement is available, on request and free of charge.

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