Week Ahead | Z Energy Jumps +16% on Takeover

23 August 2021

Global markets were mixed on Friday, as US markets (S&P 500 +0.8%) rebounded previous session losses in a what was a fairly volatile weak amid concerns that the US Federal Reserve is looking to pull back its stimulus measures.

Gains were broad-based with all sectors in the green as Technology and Utilities stocks led the gains, Microsoft, Cisco and Salesforce were among the biggest winners as investors snapped up tech stocks amid concerns around a slowing economic recovery.

European Markets edged higher (Stoxx 600 index +0.3%) on Friday, with most markets modestly in the green, with retail stocks leading the gains.

Stocks in Asia continued to fall after China left its benchmark lending rate unchanged and negative sentiment grows as investors digest a series of regulatory crackdowns announced by the Chinese Government. Tougher scrutiny over technology continues in China with a new data protection law the latest measure to be approved on Friday. As a result, investors continued to sell Chinese tech shares including Alibaba (-2.6%), pushing China’s CSI 300 (-1.9%), Hong Kong’s Hang Seng (-1.8%) and the Shanghai Composite (-1.1%) well into negative territory again on Friday. Japan’s Nikkei 225 shed-1.0% after Toyota (-4.1%) announced it would cut its September production levels by 40% due to chip shortages.

Closer to home, 72 cases of covid have been reported in the community in NZ, including 6 in Wellington. Cabinet meeting to determine if the current lockdown would be extended from Tuesday. On the other side of the ditch NSW has extended their lockdown to Greater Sydney until the end of September (making it a ~3-month lockdown) and will enforce tighter restrictions (but still less stringent than NZ’s level 4).

Z Energy  (ZEL:NZX / ZEL:ASX)

Z Energy (ZEL) shares jumped +16% morning as they have received a non-binding indicative proposal from its Australian counterpart Ampol (formerly Caltex) to acquire Z at an offer price of $3.78 per share. The offer represents 22% premium to the last close on 12 August 2021 (being the date prior to receipt of the Proposal).

The Proposal from Ampol follows earlier unsolicited, confidential and non-binding  indicative proposals in the form of letters or verbal communications to Z for $3.35,  $3.50 and $3.60 per share. The offer is subject to regulatory approval from Commerce Commission and New Zealand Overseas Investment Office – which Ampol is confident they can obtain. Current shareholders aren’t required to take action yet until there are further developments from the Ampol and the board.

Prior to the offer we were BUY rated on Z-Energy, and the beaten down share price has provided enough to attract a healthy takeover bid. Now that the shares have popped, we downgrade ZEL to a HOLD as it is fairly valued with limited upside in our opinion. Current shareholders may want to take some profit.


Australia & New Zealand Market Movers

The Australian market was a touch lower on Friday (ASX 200 index -0.05%) extending towards a fifth consecutive decline. 

Commodity price weakness stemmed from China uncertainty and questions around the growth of the global economy weighed down on the market, causing the Aussie miners and energy companies to slide lower.

Travel stocks were also generally weaker as COVID cases continue to rise and lockdown extensions continue on both sides of the Tasman.

Cochlear shares were hit hard on the day down -7.4% after falling short of profit expectations. Treasury Wines was one of the big gainers of the day up +5.6% a day after delivering a relatively upbeat result. 

The New Zealand market was weaker on Friday (NZX 50 index, -0.1%) ending a strong week.

It was a relatively muted day of trade follow bigger moves earlier in the week from the lockdown, with its losses reversed following RBNZ decision to keep rates lower, benefitting most of the market. Accordingly, retailers and travel stocks were weaker, while Healthcare stocks were stronger. 

My Food Bag shares were up +4.5% as investors anticipate it would benefit from the current lockdown after the company announced it was on track to deliver on its 2022 forecasts.

3 Things Markets will be Watching this Week

  1. ​Local corporate earnings is underway. Major names reporting this week include Chorus, Freightways, Boral, Oil Search, Scentre Group, Summerset, Afterpay, Wisetech Global, Meridian, SkyCity, Flight Centre, Link Administration, Next DC, Qantas, Qube Logistics, Ramsay Health Care, Woolworths, Air NZ, A2 Milk and Wesfarmers.
  2. ​COVID & Lockdown updates are front & centre on both sides of the Tasman. 
  3. Globally, economic events this week include US 2nd Quarter GDP data, manufacturing data across Europe and Australia, and the latest retail sales prints in Australia and NZ.
Global markets were mixed on Friday, as US markets (S&P 500 +0.8%) rebounded previous session losses in a what was a fairly volatile weak amid concerns that the US Federal Reserve is looking to pull back its stimulus measures.

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