Has Z Energy’s (NZX:ZEL) fuel demand taken a hit?

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 Has Z Energy’s (NZX:ZEL) fuel demand taken a hit?
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Highlights

  • Z Energy is witnessing reduced demand for all fuels at present.
  • Z has projected its volume reduction as New Zealand moves through various Alert levels amid the COVID-19 outbreak.
  • The Group expects its RC EBITDAF to be between $270 million to $310 million in FY22.

Z Energy Limited (NZX:ZELASX:ZEL) is a fuel supplier to commercial customers like shipping firms, airlines, trucking firms, etc.

In a trading update released on 16 September, the Group stated that ZEL is witnessing lower demand for all fuels as the country continues to operate amid the COVID-19 pandemic.

Z Energy’s market cap and returns

Image source: © 2021 Kalkine Media New Zealand Ltd, Data source- Refinitiv

New Zealand’s largest city Auckland had moved into a 5-week Alert level 4 lockdown on 17 August after the Delta variant of COVID-19 affected the city.

Z witnesses decreased fuel demand

Z has calculated how each alert level would influence volumes based on the basis of the past four weeks prior to the Alert Level 4 lockdown, which was announced on August 17, 2021. The forecasts will be made on the present economic conditions and predictions for how New Zealand would progress through the warning levels.

ALSO READ: Z Energy(NZX:ZEL) announces latest guidance, concerns about COVID-19

The Group has estimated a 70% impact on retail, 50% on Jet, 40-45% on distributors and truckstops and 30% on store sales under Alert Level 4 lockdown.

Mike Bennetts, CEO of ZEL, stated that Z experienced a solid first quarter in FY22, but recent earnings fluctuation and uncertainty owing to COVID-19 lockdowns tempered that performance.

RELATED READ: Which are 5 NZX energy stocks to be considered in 2021?

The volume drop during the most recent countrywide lockdown was less than that seen in 2020. Z also did not incur the same amount of expenditure due to supply chain interruption.

He added that the actual and likely impact of COVID-19 has been majorly alleviated by proactive steps taken in Q1 to handle the risk that comes from the cost of goods sold.

On 21 September, at the time of writing, ZEL was trading at $3.39, down 0.59%.

Outlook

Z Energy has reaffirmed its RC EBITDAF guidance to be between $270 million and $310 million and dividends expected to be between 19cps and 23cps in FY22. This is despite the sales and supply chain disruptions faced by the group.

DO READ: How are 5 NZX energy companies extending support to consumers?

The Group’s H1 FY22 results are due to be declared on 4 November 2022.

(NOTE: Currency is reported in NZ Dollar unless stated otherwise)

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