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Shell name to stay as Infratil focuses on Australasian energy assets

Thursday 11th March 2010

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Infratil, which is in advanced talks to acquire assets from Shell New Zealand, said there is substantial upside value in being an overtly New Zealand-owned dominant petrol company as the local oil industry restructures, according to an investor presentation lodged with NZX today.  

Included in moves to Kiwi-fy the Shell assets, its Manila-based customer call centre would return to New Zealand. Infratil warns that there are some "material and outstanding" conditions and issues outstanding, but says the target completion date for the sale of Royal Dutch Shell's New Zealand "downstream" assets to an Infratil/NZ Super Fund consortium is April 1.

The stake includes 17.1% of New Zealand Refining Co., which Infratil chief executive Marko Bogoievski noted was being acquired "during a period of bottom of cycle margins." NZRC's refining margins have been cut to ribbons in the last 18 months, and other oil major-owned stakes in the refinery are also thought informally to be for sale.

However, the key to the Infratil strategy will be maintaining a "well located nationwide network of retail sites and truck stops" under the Shell retail brand name, backed by the FlyBuys and supermarket docket loyalty schemes.

With investment in known money-spinners like car washes and "quick service restaurants", with decisions "based on local context" and undertaken by senior managers no longer hampered by "multiple reporting lines offshore".

"Innovative new offers for business customers unconstrained by Shell global policy" would also be possible.

"Closer proximity of capital providers and operations is expected to result in a more pragmatic approach to investing in the business," says the presentation prepared by Mike Bennetts, the new chief executive for the Infratil-led consortium, who most recently was CEO of BP's Eastern Hemisphere supply and trading arm.

With Infratil founder Lloyd Morrison already a champion of a new flag for New Zealand, Infratil says it sees "growing consumer prerference for local companies, e.g., Kiwibank".

On top of that, "Mobil's announced ikntent to exit both infrastructure and customer-facing activities", along with evidence that "BP and Caltex have limited willingness to step out their investments in New Zealand".

These were signals of "the beginning of an industry restructure".

Bogoievski's presentation concentrated on Infratil's investment strategy, identifying three kinds of assets the "specialist infrastructure investor" targets: core long term hold, early-stage investment, and medium-term private equity.

In all categories, a key condition for investment is the presence of "significant industry change".

Bogoievski noted there was a "question mark over whether (Shell) is a private equity deal of long-term investment with decent reinvestment potential".

Detailed presentations on TrustPower, in which Infratil has a 50.5% interest, and its opportunities in the Australian market are also being presented at the investor day, with Infratil concluding that it is drawing back to a focus on Australasia, after mixed results withEuropean airport investments, with "an increasing energy bias".

The presentation included new detail but no change in guidance on year-end earnings, with second-half net profit after tax to reflect the $100 million in gains from sale of its stake in ENE, an Australian energy company, and Auckland International Airport. 

Earnings before interest, tax, depreciation and amortisation would be in the order of $360 million, according to a chart supplied in the presentation, but negative movements in the value of Australian forward energy hedges would likely dent the result by around $40 million, depending on March prices.

Infratil shares were trading unchanged today at $1.65, having traded in a $1.60 to $1.70 range for the last three months.

Using average broker valuations of the Infratil assets, Bogoievski found a 42% gap between the shares at $1.66 and the brokers' net tangible assets valuation of $2.36 billion, itself above Infratil's $2.13 billion valuation.

He said the outlook for new investment opportunities was improving "as second order effects of financial crisis result in dislocation and less competition for attractive assets".

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