NZ Refining first-half profit slides less than expected

New Zealand Refining [NZX: NZR] posted an 82% slump in first-half profit and trimmed its interim dividend as a build-up in global oil stocks weighed on the Marsden Point refinery operator's margins.

Net profit dropped to $11.4 million, or 3.71c per share, in the six months ended June 30 from $65.2 million, or 20.91 cents, a year earlier when cheap oil fattened the Whangarei-based company's margins. Revenue fell 24% to $155.6 million, with gross refining margins shrinking to $US5.25 a barrel from $US9.09/barrel in 2015.

The company's board said it would pay an interim dividend of 3c  per share on September 22 to shareholders on the register at September 8.

"We fully expected the stellar refining margins seen in 2015, where the company operated at cap or near cap refining margins, to return to more normal levels," chief executive Sjoerd Post said in a statement. "In the first half, global refining margins have been supported by  strong gasoline demand in the US, China and India and lower crude oil prices.

"At the same time, there is near-term pressure from product 'overhang,' the result of a build-up of surplus stocks."

Analysts were expecting NZ Refining to be hit by the changing dynamics in global oil markets, and the company's result was better than Forsyth Barr analyst Andrew Harvey-Green was picking. He forecast profit of $5.2 million on revenue of $151.9 million and an interim dividend of just 2c.

Mr Post said an upgrade to the refinery's hydrocracker unit bolstered margins. Excluding a shutdown period, gross refinery margins were $US6.37/barrel in the half, near the top of the company's historical average. Throughput was 21.1 million barrels in the half, up from 20.9 million barrels a year earlier.

The product overhang is expected to persist for several months and NZ Refining has lowered its capital expenditure programme in response.

"We have refocused on the continued safe operation of the refinery and the vital few revenue growth projects with attractive payback periods," Post said.

NZ Refining shares last traded at $2.56 and have dropped 32% so far this year. The stock is rated an average 'buy' based on three analyst recommendations compiled by Reuters, with a median price target of $3.05.

(BusinessDesk)

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