By Jenny Ruth
Tuesday 11th January 2011
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The New Refining Company's refining margins are likely to be higher than previously assumed, says First NZ Capital analyst Jason Familton.
Using Credit Suisse's revised global assumptions, NZR's margin is likely to average US$7.25 (NZ$9.55) a barrel in calendar 2011, up from US$6 previously while its 2012 margin is likely to average US$7.50, up from US$6.
“NZR is heavily exposed to global refining margins which have consistently proved during 2010 to have been stronger than those anticipated at the beginning of the year,” Familton says.
His upgraded margin expectations are anticipated to drive significant earnings and dividend growth, leading to improved share price performance, he says.
He has raised his expected earnings before interest, tax, depreciation and amortisation (EBITDA) for calendar 2010 by 3.7% to $155 million and has raised his 2011 earnings forecast by 44.1% and his 2012 forecast by 50.1%.
His new $120.2 million net profit forecast is broadly in line with the $124.9 million NZR reported for 2008 but is still below the peak $161.6 million earned in 2005.
Familton has also raised his valuation of the stock from $4.26 to $5.21.
“Key risks to our earnings forecasts, as always, remain refining margins and also the New Zealand dollar where we see upside risk, and therefore downside risk to our earnings forecasts,” he says.
Rating: Outperform (upgraded from neutral).
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