CORRECT: NZ Refining seen stepping up dividends on record earnings, lower debt

Thursday 28th January 2016

New Zealand Refining is expected to almost double the amount it returns to shareholders in the coming year as analysts anticipate record earnings from the country's only oil refinery, which resumed dividend payments in 2015.

The Whangarei-based company is expected to pay a final dividend of 14 cents per share in the 2015 financial year, adding to the 5 cents paid in the first half, before stepping it up to 35 cents for 2016, according to a Reuters summary of analyst forecasts. Its results are due to be released on Feb. 24. The company cancelled dividend payments in 2014, the first time it had ever done so.

NZ Refining earned its highest ever processing fee in 2015 as it processed a record number of barrels. Its refining margins are being boosted by a weaker kiwi dollar and a sharp drop in oil prices, and as investments in upgrades and efficiencies start to pay off. The company is expected to post an annual profit of $151 million in 2015, according to the Reuters forecasts. That's a jump up from the $9.9 million the previous year, and would surpass the previous record of of $139.8 million set a decade earlier.

"New Zealand Refining has positive earnings momentum driven by strong refining margins that are expected to remain firm in the near term," Forsyth Barr analyst Andrew Harvey-Green wrote in a report this month, where he retained his 'outperform' rating on the stock. "The resumption of dividends and expected increase in dividends in FY2016 makes NZR an attractive prospect."

The company's net debt, which ballooned to $315 million in 2014, is expected to reduce to $211 million in 2015, and continue to decline to $145 million in 2016, according to the Reuters forecasts.

The reduction in debt "to more manageable levels" is likely to help underpin increases in the dividend payments, Craigs Investment Partners research analyst Grant Swanepoel said in a note this month, where he rates the stock a 'buy'.

NZ Refining shares last traded at $3.69. The stock has gained 45 percent the past year, making it the fourth-best performer on the S&P/NZX 50 benchmark index.

BusinessDesk.co.nz

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