An analyst says Z Energy's foray into biodiesel will add little to the company's bottom line in the near term, though it could be part of a longer term plan to establish itself in the biofuel market.
Photo: RNZ
Z Energy is building a $21 million biodiesel plant in South Auckland that will turn animal fat into 20 million litres of fuel a year. Production could double if there is demand.
But Forsyth Barr analyst Andrew Harvey-Green says once up and running, the project will only generate between $2 million and $4 million of earnings a year.
He says it's a relatively small investment and the 20 million litres of biodiesel fuel manufactured in the short-term will move to 40 million litres.
Mr Harvey-Green says that's probably 4 to 5 percent of Z Energy's total diesel sales, so it's a relatively small part of the company's overall business and is unlikely to be a share-price mover.
He says Z has already talked about wood biomass and tests are underway with Norske Skogg in Taupo looking at the potential there.
Mr Harvey-Green believes opening more petrol stations and stream lining its commercial and supply chain operations could add up to $50 million to Z Energy's earnings by 2018.
As a result, he's increased Z Energy's target share price by 15 cents to $4.05.