NZ: IPO an option for Ampol to shed Gull in its bid for Z Energy, but would KiwiSaver funds want another fossil fuel stock?
By Sourced Externally
September 1, 2021
An IPO on the NZX sharemarket is among the options should Ampol be forced to sell petrol retailer Gull in order to get permission to take over Z Energy.
Fuel industry experts are struggling to identify any clear candidates to buy the chain of petrol stations.
Australian refiner and petrol retailer Ampol has made a $1.97 billion bid for NZX-listed Z Energy, which is at a low ebb after being battered by Covid’s impact on fuel consumption, and the financial troubles of the Marsden Point oil refinery.
With Z Energy controlling around half of the consumer petrol retailing market, however, Ampol signalled it did not expect to be allowed to keep Gull, which it bought in 2017, if it received permission from competition and investment authorities to acquire Z Energy.
But fuel industry watchers say there are no obvious buyers for Gull with none seeing second and third-placed petrol retailers BP and Mobil as likely to make a tilt for the chain, which has 106 retail sites.
Gull has been a fierce price competitor for the big petrol retail chains.
When it opens a services station, rival petrol retailers have to drop their prices to compete, an effect dubbed the “Gull effect”.
Gull’s business model, which includes bare-bones self-service petrol stations, has similarities to the business models of the small New Zealand players taking on the major oil retailers, Waitomo and Nelson Petroleum Distributors (NPD), both of which are expanding, but are small compared to Gull.
Jimmy Ormsby, managing director of Waitomo, said: “Gull is in the region of twice the scale of Waitomo.”
But, he said: “We would take a disciplined look at it.”
“From a Kiwi perspective, you would think it’s attractive to have a Kiwi business owning that business, otherwise you are getting back into the position of a lot of multinationals owning the fuel industry in New Zealand,” he said.
Z Energy is a target for giant Australian fuel retailer and refiner Ampol.
Ampol’s 2020 annual report listed the goodwill in Gull alone was worth A$224m, and Ampol’s revenue in the 2020 full year from New Zealand was A$572m, but that was down as a result of Covid’s impact from $623m the previous year.
Jarden analyst Grant Swanepoel said Ampol would be a forced seller of Gull, and as BP or Mobil would likely need Commerce Commission approval to take over Gull, Ampol would rule out selling it to them. It would not want another takeover application slowing down its move on Z Energy.
That left Ampol’s Australian rival Viva Energy as a likely multi-national bidder, he said.
Swanepoel said Ampol would still be expecting a price “northwards of $400 million.
There’s a lot of petrol to flow through Z’s pumps before the deal is done, and it’s not only the Overseas Investment Office and Commerce Commission which have to approve the takeover bid for it to go ahead.
Z Energy’s shareholders have to vote on the deal, which Z Energy’s board thinks currently undervalues the company.
Z Energy was allowed to take over Caltex in 2016, which many people saw as likely to undermine competition.
KiwiSaver fund managers say an IPO for Gull would be one way Ampol could exit the business, though Paul Brownsey from Pathfinder KiwiSaver struggles to imagine fund managers rushing to embrace it.
“I just think the level of risk of investing in an IPO petrol retail, well, I struggle to see the investment rationale,” he says.
Pathfinder excludes investments in fossil fuel companies from its KiwiSaver, but says many other KiwiSaver schemes, many of which own Z Energy shares, do not.
Paul Brownsey says he would not support a Gull IPO on the NZX sharemarket with his investors’ money.
Simplicity chief executive Sam Stubbs could see a Gull IPO as a transparent retail business mum and dad investors would buy into.
“It’s a possibility at the right price. It might get support among retail investors. There aren’t many floats, and there’s a lot of money out there,” Stubbs said.
“It’s not exciting, and it’s not a sunrise industry, but there’s a price for everything.”
Swanepoel was doubtful. “I think it’s unlikely. These guys (the KiwiSaver funds) could come up against environmental, social and governance issues,” he said.
One of the reasons Z Energy’s share price was so weak was fund managers were finding it increasingly hard to justify owning its shares.
Swanepoel believes it would be more likely that NPD or Waitomo would do a deal with a private equity firm to raise the money to buy Gull.
Ampol has 1900 branded fuel retail sites in Australia, and is keen to expand its footprint in New Zealand, where it currently owns Gull.
With Ampol’s Gull having brought competition, and lower prices to many parts of the country, most notably the South Island, there’s speculation Ampol taking over Z Energy could be a good thing for motorists.
Ampol is a giant in Australia’s fiercely competitive market, and could bring some fight to New Zealand forecourts.
“They’ve obviously got the capacity and resources on a different scale to what Z has,” Ormsby says.
A competition lift would be welcome here as there are mixed opinions about whether fuel industry reforms introduced following a Commerce Commission review are having much of an impact yet.
Waitomo petrol stations have been popping up in many places, including Auckland, bringing much-needed price competition.
The 2019 review found motorists were not getting a good deal, especially in the South Island, and reforms were introduced, which started to take effect earlier this month in a bid to give the likes of Gull, Waitomo and NPD a fairer deal.
But Larry Green, founder of the price-monitoring app Gaspy, said the jury was out on the impact the reforms had had so far.
“If you put a gun to my head and asked me to produce evidence, I’d be dead,” the blunt-speaking Green said.
The main plank of the reforms was to give the big importers, Z Energy, Mobil and BP the legal obligation to sell fuel to smaller companies like Gull, Waitomo and NPD at a transparent price.
Z Energy’s market power, with the Caltex brand under its control, was demonstrated in the Commerce Commission’s 2019 study into the fuel market.
It also gave them a right to break long-term supply deals to negotiate new deals.
Dave Bodger, managing director of Gull, said the reforms had brought about change in the major oil companies in advance of their introduction, giving confidence to challenger brands to invest and expand.
Bodger attributed some of the unwinding of the South Island premium to the reforms, and the signals they sent to the fuel industry.
“South Island prices are now very similar to North Island prices. There used to be a 20, at times 40, cents a litre difference. That wasn’t fair. That’s changed,” Bodger said.
Ormsby is not convinced.
“No, that’s just competition,” he said, with Waitomo, Gull and NPD expanding in the South Island.
NPD is a family-owned company which has provided stiff competition for the major petrol retailers wherever it has opened. The construction site in Geraldine where a new NPD service station is being built.
That’s the market behaving as it should be. We saw that when we entered Wellington. There was a drop of around 20-30 cents a litre.”
That was us and Gull entering the South Island,” he said.
Green also saw the South Island differential disappearance as a competition effect magnified by Gaspy making it easy for motorists to compare prices near them.
The reforms should create a potential opportunity for an owner of Gull, and Halliday is pushing the power of Ampol to bring cheaper fuel into New Zealand as part of the company’s public relations campaign as it seeks to acquire Z Energy.
Ampol owned trading, refining and shipping operations along the east coast of Australia, said Halliday, giving it a strong, and cost-efficient base to supply Z Energy, should it succeed in taking it over.
AA fuel industry expert Mike Noon said the rationale for converting Marsden Point into an import terminal was that fuel could be more imported at a lower price than refining it here.
“We would hope fuel would become cheaper,” Noon said.
And more price cutting, and stronger competition would be welcome as the extra motorists had to pay for premium fuels was still excessive, he said.
A rule requiring petrol stations to advertise the price of “premium fuels” on their roadside signs is not due to come into effect until February, and where signage had been installed ahead of the deadline it seems to be having little effect on high mark-ups that the AA says should be no more than 10 cents a litre.