Z Energy shares take a hit after earnings downgrade

Z Energy shares have taken a small tumble after the company revised its earnings guidance for the 2019 financial year to $420-455 million, down from the previous range of $450-485m.

Z shares had fallen 18c or 2.4% to $7.32 in afternoon trading.

The company says earnings were impacted by unexpected levels of disruption in its supply chain and record-high petrol prices during the first quarter.

Harbour Asset Management managing director Andrew Bascand says the disruption in its supply chain was largely due to a Refining NZ pipeline breach.

The 170km pipeline, which supplies petrol, diesel and jet fuel (95% of Auckland's total fuel demand) from the refinery to the Wiri Oil Terminal in South Auckland, was shut down for 10 days following a leak discovered in mid-September.

Mr Bascand says earning have also been hurt by the record high pump prices, which could increase further.

“Consumers are reducing their consumption based on those higher prices. It takes them a while to adjust to the high prices in terms of their budgeting.”

He says the fact that the compounding factors have come in the first quarter is concerning for the company.

“Since the end of the first quarter there has been a 15c a litre additional tax placed on drivers in Auckland, so we could yet see a further price elasticity occur.”

Mr Bascand says it is not clear whether increasing competition in the sector played any part in the downgrade. However, he says the company faces the longer-term issue of increased vehicle efficiency.

“While it will take many years for the percentage of hybrid and electric vehicles to make a dent on overall consumption of petrol, we know that is the trend we are going along.

“That disruption has begun but it may take several years before we really see that in an exaggerated demand cycle.”

The company had a strong end to the last financial year, increasing net profit 8% to $263 million for the year ended March 2019, up from $243m the previous year.