An acquisition by Ampol of Z Energy could enhance its international trading operations, say analysts, in a transaction that could be “very logical and synergistic”.
It comes amid speculation that $1.5bn New Zealand fuel retailer and distributor has recently been in the cross hairs of at least two suitors, with the company appointing Goldman Sachs to offer defence advice.
Some sources in the market suggest that a deal makes the most sense for Dutch oil trader Vitol, which is flush with cash after a bumper year on the back of major oil price fluctuations, while Ampol’s mergers and acquisitions team has recently been busy working on some sort of transaction, according to sources.
The talk in the market is that the closure of the New Zealand oil refinery at Marsden Point, of which Z Energy is a 15 per cent shareholder, would be the catalyst for a deal, transforming New Zealand into an all-import fuel market.
This is at a time that the country’s Labour government maintains a focus on a target of 100 per cent renewable energy by 2030.
The closure would make the company attractive to global and regional fuel product portfolios.
In a research note, analysts at Macquarie say that such an acquisition could capture long-term value and enhance Ampol’s international trading operations.
This could lead to a deferral of share buybacks as a result.
Z Energy operates 133 sites with the Caltex brand and 197 carrying the brand of Z Energy.
Macquarie analysts say that Ampol’s market position in Australia fuels is near saturation point and it has already expanded internationally.
Ampol purchased Gull New Zealand in 2016 for about $325m, equating to about 8 times its earnings before interest, tax, depreciation and amortisation, and 20 per cent of SeaOil in the Philippines for about $115m, representing about three times EBITDA.
Z Energy is trading on between 6 and 7 times its earnings including debt.
The company purchased Caltex New Zealand just over five years ago for $NZ785m or 5.9 times EBITDA including debt.
International earnings before interest and tax contribute about 20 to 25 per cent of Ampol’s fuel and infrastructure EBIT.
The analysts said that material supply chain synergies existed with Z Energy.
The refinery sale removes earnings volatility for Z Energy without the oil refining margins having an impact and releases working capital, creating an opportunity in regional fuel product sources.
Macquarie says this is where Ampol could add considerable value given its existing trading operations.
One possible challenge for an Ampol transaction, the analysts say, is clearance from the New Zealand Commerce Commission, as the deal would take Ampol’s market share in New Zealand to 40 per cent across three brands.
“We expect the New Zealand Commerce Commission would look at Ampol’s existing 106 Gull sites and Z Energy’s network closely on a local area basis and make an assessment on whether any sites would need to be divested.”
The analysts point out that Z Energy sold 19 sites and one truck stop when it purchased Caltex New Zealand.
They said they expected Ampol to provide further comment at its half year results day on August 23, including confirmation of a bid and potential share buybacks.
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