Daily ShareChat: Infratil

Price is likely to be the make-or-break issue in the negotiations for Infratil and the New Zealand Superannuation Fund to buy the Shell New Zealand assets, says McDouall Stuart.

While it won't speculate on the sale price, to us, however, the $1 billion figure touted by Shell early in the sale process presents as fanciful, particularly given the (albeit shallow) market for New Zealand Refinery shares is currently valuing Shell's 17.1% stake at just $208 million," it says. It says the NZR stake is probably the most valuable of Shell's New Zealand assets, which also include 229 petrol stations, 95 truck stops, 25% of Fly Buys and facilities at Auckland and Christchurch airports.

"Shell is clearly not a company that needs money," it says. "But it is a company that appears to have reached a view (as an increasing number of the global oil majors have) that downstream activities like refining and retail are increasingly not core to its business, particularly in small and mature markets like New Zealand."

McDouall Stuart says refining is a heavily cyclical business and is at the start of a prolonged downturn due to very large volumes of new refining capacity coming on-stream in Asia.

Refining margins have fallen steeply since early-to-mid 2008. "In this respect, Shell's interest in exiting its downstream business comes at what is possibly the worst point in the downstream sector's current cycle."

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