Company Reports

Ampol owns and operates a major refined petroleum product import terminal at Kurnell in Sydney and a refinery at Lytton in Brisbane. Annual refining capacity fell by half to 6.0 billion liters, about one third of company marketed volumes, when Kurnell closed. Kurnell refinery was shut in 2014 because of operational issues and unfavorable demand for the product mix. Refineries and finished product import terminals are integrated with pipelines, distribution, and marketing. The national service station network exceeds 2,000, including 350 jointly branded Ampol/Woolworths (ASX:WOW) sites.

Our AUD 35 fair value estimate for no-moat Ampol stands. That’s despite Australia’s largest refined fuel retailer reporting lower-than-expected underlying 2023 net profit after tax, down 3% to AUD 289 million against our AUD 334 million target. We read no long-term implications. A better-than-expected performance from convenience retail was more than offset by a worse outcome from fuels and infrastructure, with lower margins featuring. We expect the latter to normalize over the next couple of years. Earnings declined at Lytton refinery and improvements at Z Energy in New Zealand were largely as expected.

Our AUD 35 fair value estimate for no-moat Ampol stands. Australia’s largest refined fuel retailer reported unaudited fourth-quarter 2023 underlying EBIT in the vicinity of AUD 340 million, down approximately 30% on the immediately preceding quarter. We talk only in approximates as Ampol didn’t provide a figure for the quarter, saying simply that 2023 full-year EBIT is anticipated to be slightly ahead of the record AUD 1.35 billion result delivered in 2022. We marginally increased our 2023 EPS forecast to AUD 3.34, based on a slightly stronger 2023 underlying EBIT estimate of AUD 1.40 billion.

Ampol owns and operates a major refined petroleum product import terminal at Kurnell in Sydney and a refinery at Lytton in Brisbane. Annual refining capacity fell by half to 6.0 billion liters, about one third of company marketed volumes, when Kurnell closed. Kurnell refinery was shut in 2014 because of operational issues and unfavorable demand for the product mix. Refineries and finished product import terminals are integrated with pipelines, distribution, and marketing. The national service station network exceeds 2,000, including 350 jointly branded Ampol/Woolworths (ASX:WOW) sites.

We increase our fair value estimate for no-moat Ampol to AUD 35.00 from AUD 34.50 due to the time value of money. Australia’s largest refined fuel retailer reported strong third-quarter 2023 EBIT of AUD 438 million, up 65% on the previous corresponding period, or PCP. This is largely in line with our expectations and our 2023 EPS forecast of AUD 3.26 is little changed. Our AUD 2.14 DPS forecast is similarly little changed and equates to a healthy 6.7% fully franked yield at the current share price. We still assume a 60% payout for the second half, bringing the full-year payout to 66%.

Ampol owns and operates a major refined petroleum product import terminal at Kurnell in Sydney and a refinery at Lytton in Brisbane. Annual refining capacity fell by half to 6.0 billion liters, about one third of company marketed volumes, when Kurnell closed. Kurnell refinery was shut in 2014 because of operational issues and unfavorable demand for the product mix. Refineries and finished product import terminals are integrated with pipelines, distribution, and marketing. The national service station network exceeds 2,000, including 350 jointly branded Ampol/Woolworths (ASX:WOW) sites.

Ampol owns and operates a major refined petroleum product import terminal at Kurnell in Sydney and a refinery at Lytton in Brisbane. Annual refining capacity fell by half to 6.0 billion litres, about one third of company marketed volumes, when Kurnell closed. Kurnell refinery was shut in 2014 because of operational issues and unfavourable demand for the product mix. It was built to produce petrol, but the market has moved increasingly to diesel with advancing engine technology. Refineries and finished product import terminals are integrated with pipelines, distribution, and marketing. The national service station network exceeds 2,000, including 350 jointly branded Ampol/Woolworths (ASX:WOW) sites.

Ampol owns and operates a major refined petroleum product import terminal at Kurnell in Sydney and a refinery at Lytton in Brisbane. Annual refining capacity fell by half to 6.0 billion litres, about one third of company marketed volumes, when Kurnell closed. Kurnell refinery was shut in 2014 because of operational issues and unfavourable demand for the product mix. It was built to produce petrol, but the market has moved increasingly to diesel with advancing engine technology. Refineries and finished product import terminals are integrated with pipelines, distribution, and marketing. The national service station network exceeds 2,000, including 350 jointly branded Ampol/Woolworths (ASX:WOW) sites.

Our AUD 27.00 fair value estimate for no-moat Ampol is unchanged. The company reported a 40% decline in underlying 2020 replacement cost net profit after tax, or NPAT, to AUD 207 million. This beat our AUD 186 million forecast by 11%, but we glean no material longer-term implications. The driver was largely lower-than-anticipated depreciation from the convenience retail segment. But a stronger-than-expected second-half turnaround from Lytton refinery also contributed.

Ampol owns and operates a major refined petroleum product import terminal at Kurnell in Sydney and a refinery at Lytton in Brisbane. Annual refining capacity fell by half to 6.0 billion litres, about one third of company marketed volumes, when Kurnell closed. Kurnell refinery was shut in 2014 because of operational issues and unfavourable demand for the product mix. It was built to produce petrol, but the market has moved increasingly to diesel with advancing engine technology. Refineries and finished product import terminals are integrated with pipelines, distribution, and marketing. The national service station network exceeds 2,000, including 350 jointly branded Ampol/Woolworths (ASX:WOW) sites.

Of the three Australasian refined fuel retailers we cover, New Zealand’s no-moat Z Energy is currently the cheapest at a price/fair value estimate of 0.43, followed by Australian players no-moat Viva Energy's 0.62 and no-moat Ampol Limited's (nee Caltex Limited) 0.90. Z Energy is rated 5-stars, Viva is 4-stars and Ampol 3-stars. Ampol was in 4-star territory until recently, its shares now up by approximately 45% from coronavirus lows. Viva was in the 5-star zone, but has risen by over 50% from March lows. Z Energy, however, remains in the doldrums in 5-star territory, its shares up only 12% from pandemic lows and wallowing.

We make no change to our AUD 34.00 fair value estimate for no-moat Caltex. The company reported first-quarter 2020 underlying EBIT of AUD 142 million, marginally ahead of the previous corresponding period’s AUD 138 million, but slightly below our expectations. We consequently reduce our 2020 EPS forecast by 9% to AUD 1.68, though much will rest on the pace at which the economy opens again in the wake of coronavirus.

We make no change to our AUD 34.00 fair value for no-moat Caltex. That’s despite the company reporting a 28% reduction in its February 2020 refiner margin versus January’s USD 5.78. The Singapore weighted average margin was lower chiefly on the back of soft global demand for gasoline and distillates due to coronavirus. However, the transition to new IMO 2020 fuel specifications further impacted refiner margins. Caltex says demand reductions due to coronavirus are further compounded by the current commitments made by OPEC and other oil producers to maintain current production levels.

Caltex owns and operates a major refined petroleum product import terminal at Kurnell in Sydney and a refinery at Lytton in Brisbane. Annual refining capacity fell by half to 6.0 billion litres, about one third of company marketed volumes, when Kurnell closed. Kurnell refinery was shut in 2014 because of operational issues and unfavourable demand for the product mix. It was built to produce petrol, but the market has moved increasingly to diesel with advancing engine technology. Refineries and finished product import terminals are integrated with pipelines, distribution, and marketing. The national service station network exceeds 2,000, including 350 jointly branded Caltex/Woolworths (ASX:WOW) sites.

We make no change to our AUD 34.00 fair value estimate for no-moat Caltex. The company reported a 38% decline in underlying 2019 replacement cost NPAT to AUD 344 million, somewhat ahead of our AUD 327 million expectations. Underlying earnings excludes a net AUD 39 million in post-tax gains, including AUD 53 million pretax gain of sale of retail sites. And despite being aided by a large net increase in payables, net operating cash flow was better than we’d expected, up by 42% to AUD 850 million.

Caltex owns and operates a major refined petroleum product import terminal at Kurnell in Sydney and a refinery at Lytton in Brisbane. Annual refining capacity fell by half to 6.0 billion litres, about one third of company marketed volumes, when Kurnell closed. Kurnell refinery was shut in 2014 because of operational issues and unfavourable demand for the product mix. It was built to produce petrol, but the market has moved increasingly to diesel with advancing engine technology. Refineries and finished product import terminals are integrated with pipelines, distribution, and marketing. The national service station network exceeds 2,000, including 350 jointly branded Caltex/Woolworths (ASX:WOW) sites.

We increase our Caltex fair value estimate to AUD 34.00 from AUD 33.50, equivalent to the time value of money. But we reduce our 2019 group EPS forecast by 5% to AUD 1.30, following a weaker than forecast refiner margin of USD 7.51 per barrel versus USD 10.53 in the third quarter. Impacts from North Sea crude markets, petrol stock builds in the U.S. and Asia, and weaker demand for Asian diesel from Europe are the cause.

Caltex owns and operates a major refined petroleum product import terminal at Kurnell in Sydney and a refinery at Lytton in Brisbane. Annual refining capacity fell by half to 6.0 billion litres, about one third of company marketed volumes, when Kurnell closed. Kurnell refinery was shut in 2014 because of operational issues and unfavourable demand for the product mix. It was built to produce petrol, but the market has moved increasingly to diesel with advancing engine technology. Refineries and finished product import terminals are integrated with pipelines, distribution, and marketing. The national service station network exceeds 2,000, including 350 jointly branded Caltex/Woolworths (ASX:WOW) sites.

We make no change to our AUD 33.50 fair value estimate following Caltex’s recent investor day. Our fair value estimate equates to an unchanged 2023 EV/EBITDA of 7.3, P/E of 15.9, and dividend yield of 3.5%. We assume a five-year group EBITDA CAGR of 6.1% to AUD 1.5 billion by 2023, the CAGR flattered by 2018’s profit dip. At AUD 34.14, Caltex shares trade close to fair value.

We retain our fair value of AUD 33.50 per share for no-moat Caltex following the conditional AUD 34.50 off-market takeover bid from Quebec-headquartered multinational convenience operator Alimentation Couche-Tard Inc., or ACT.