Since Jacinda Ardern said consumers were being fleeced, Z Energy shareholders have lost more than $500m

Thursday, 25 October 2018

Prime Minister Jacinda Ardern claims NZ consumers are being fleeced by petrol prices. (Video first published in October 2018)

Investors in New Zealand's largest petrol company have taken a hammering, with shares plunging to the lowest level since mid-2016, as the market frets about both political intervention and already increasing competition.

As petrol prices have surged to record highs in recent months, the prime minister has made unprecedented comments about the sector as she effectively announced the fuel industry would face the first investigation under new powers from the Commerce Commission.

'Consumers, in my book, are being fleeced,' Ardern told reporters on October 8, as she announced planned changes to the Commerce Act would be rushed through the final stages.

The amendment passed its final reading on Wednesday evening, with commerce minister Kris Faafoi signalling he was likely to announce the first market study in December. The Commerce Commission declined to comment.

* Prime Minister Jacinda Ardern rules out more regional fuel taxes

* Prime Minister doesn't rule out supermarkets as next target for competition probe

* If the Government is so certain motorists are being fleeced, what is it waiting for?**

A Z Energy petrol station, on Grove Road in Blenheim. The company's value has dropped by more than $500 million.

Ardern's comments marked the start of Z Energy's share price tumble, down 2.4 per cent on the day, from $7.16 to $6.99.

Since then shares have dropped to $5.88, a drop of more than 18 per cent by Thursday, wiping $520m off the value of the company.

A spokeswoman for the company declined to comment on the fall or its recent performance, as it is set to release its results on November 1.

Threat of regulation, or the pain of competition?

The threat of regulation does not appear to be the only factor hurting Wellington-headquartered Z.

In recent days analysts have warned Z, which hired forecourt attendants during work hours to assist motorists, is losing volumes to lower priced competitors.

Mike Bennetts, who has been chief executive of Z Energy since 2010, will present the company's half year results on November 1.

Recent announcements by Waitomo and Australian-owned Gull could mean more pain for Z. On October 18, Hamilton-based Waitomo, which sells fuel sourced from Mobil, announced it would be opening a site in Wellington in early 2019, a city known to have among the highest petrol prices in any major centre in New Zealand. Gull has said it is close to securing a site in Kāpiti, which would be its southernmost site.

Woodward Partners energy analyst John Kidd said Z was suffering from 'a mix of general market decline and soft quarterly performance numbers' with a sharp fall in retail sales.

'It seems to me higher pump prices are serving to pull retail customers towards lower price options.'

Prime Minister Jacinda Ardern, with Minister of Commerce Kris Faafoi and Minister of Energy Megan Woods, announced the government will rush through changes to the Commerce Act to allow the competition watchdog to investigate the margins on fuel, as the pump price hits a record high.

Most of the fall in Z's share price came after Z Energy released operational data on the September quarter on October 17.

UBS analyst Jeremy Kincaid said the figures suggested Z had lost considerable market share. Having expected the company's retail petrol volumes to be down around 4 per cent year on year, Kincaid said once Z's new contract with Foodstuffs - owners of New World and Pak n Save - was stripped out, Z may have seen retail volumes falling 13 per cent.

'We are of the view that a drop of this magnitude reflects loss of share, as customers are more likely to opt for perceived low cost fuel retailers in this high price environment.'

No other New Zealand petrol companies has its shares listed on the NZX, while for the others which trade shares on stock exchanges elsewhere, New Zealand is such a small part of the overall business that regulatory threats - or trading conditions - would have little impact on the share price.

While sharemarkets have generally have been falling in recent weeks, over the period since Ardern made the petrol comments, the NZX-50, of which Z Energy is a member, is down around 7 per cent.

PM's comments 'emotive'

Other analysts appear to be mainly focused on the risks to the company presented from the Government.

BP2GO Powderham and Moturoa owner and director Bob McLean is over having to deal with people accidentally driving off without paying for petrol.

Macquarie Securities analyst Warren Doak said Z's recent sales figures were in line with expectations, but the threat of regulation created uncertainty about Z's profits in the future.

'Investor sentiment will clearly be influenced by the heightened regulatory risk and political scrutiny surrounding the recently announced ComCom market study on the retail fuel industry. Without any current terms of reference for the market study, it is impossible to quantify either the timing or quantum of any future earnings impact.'

Doak said an investigations by the competition watchdog was generally expected by financial markets.

'What was perhaps not as expected was the emotive rhetoric that surrounded the announcement with the prime minister describing customers as being 'fleeced' at the pump and signalling a strong political resolve. We note that the opposing National Party also seen broadly supportive' of a probe.

At least one analyst at a major New Zealand wealth manager is telling clients that the fall in Z Energy's share price has been an over reaction.

Forsyth Barr analyst Andrew Harvey-Green said the sharp fall in Z's share price implied that its profitability had fallen so much, that if it were the case, the company would have been obliged to update shareholders with a profit warning, but it had not done so.

MBIE and energy minister Megan Woods have been approached for comment.

Z Energy was formed in 2010, when Infratil and the New Zealand Superannuation Fund purchased the business from Shell, which has progressively exited New Zealand.

The company also owns the Caltex brand in New Zealand, and holds a number of wholesale contracts including to stations operated by supermarket group Foodstuffs.