Crude facts bad news for refiner

Company: The New Zealand Refining Company Limited Sector: Energy processing Overview: Without wanting to be crude, it’s fair to say the New Zealand Refining Company’s (NZR) most recent result was less than refined. Puns aside, the result saw a 10 per cent drop in the share price as margins were squeezed by excess refining capacity worldwide and the strong kiwi. Pros: The location at Marsden Point in Northland is the company’s one major competitive advantage. It will also be buoyed by a new working arrangement with Z Energy and BP to co-ordinate delivery of crude to allow NZR to operate at more optimal levels. This comes on the back of support for the current $365 million expansion to petrol-making facilities. Cons: NZR will be hoping the new facilities will lead to an improvement in its refining margin. Price performance: Shareholders’ will be disappointed at recent returns, with the company trading down 35 per cent in 2011, 9 per cent in 2012, 19 per cent in 2013 and a further 15 per cent this year. Investment outlook: The high dollar, low international margins and a new discounted capital raising are balanced by the prospect of a cheap infrastructure asset trading below its asset backing.

A Broker’s View is written by Grant Davies, Authorised Financial Advisor at Hamilton Hindin Greene Limited. This article represents general information provided by Hamilton Hindin Greene, who may hold an interest in the security. It does not constitute investment advice. Grant Davies owns shares in NZR. Disclosure documents at www.hhg.co.nz.