This morning, Ampol (ALD), Australia’s largest energy distributor and retailer, released its first-half results for 2025, showing a weaker refining performance offset by a strong underlying convenience retail business in Australia and New Zealand. The HNW Portfolios have a 4% weight to ALD.

Key Points:

  • Profits Down: Ampol’s first-half profits decreased to $180 million, primarily due to lower refining margins at the Lytton refinery during the period. Convenience Retail earnings were up, driven by growth in shop margins from increased promotional mix. Z Energy in New Zealand continues to prove that it was a good acquisition, with earnings remaining stable throughout a more challenging economic environment, boosted by higher jet fuel sales.
  • Lytton Refinery: The refinery had a challenging start to the year, with globally weaker refining margins weighing on its earnings. To combat this, ALD will upgrade its refinery at the end of the year to produce lower-sulphur fuels, which will increase the margins it makes on refining fuel. Ampol is currently in talks with the government about increasing the Fuel Security Service Payment to offset the higher costs involved in refining domestically.
  • EG Acquisition: As per our note on Friday, ALD is looking to acquire EG Australia for $1.05 billion, comprising $800 million in cash and $250 million in scrip. EG Australia has 500 sites, with the majority located in the eastern states of Australia. Approximately 125 sites are slated for conversion into U-GO sites, Ampol’s unmanned service offering (see below).
  • Balance Sheet: The Ampol balance sheet remains quite strong with net debt of $2.8 billion or 2.8x leverage, above the target leverage range of 2-2.5x. Ampol will naturally fall within the target range once Lytton’s refining margin returns before rising again post-EG acquisition. Atlas looks at this as the preferred method for the transaction over an aggressive capital raise.
  • Dividend: ALD announced a fully franked dividend of 40 cents per share, representing a lower payout ratio of 53% of profits. The dividend and payout ratio are expected to increase in the second half of 2025, as refining operating margins recover.
  • Outlook: Ampol management did not provide explicit guidance but stated that they are seeing continued price increases across their Lytton refining margin and expect the EG acquisition to be completed by mid-next year, which will continue to push Ampol away from its highly volatile refining earnings. The market really liked the EG acquisition and its financing structure.

 Portfolio Strategy: ALD is the core energy exposure in the Portfolio, but with greater exposure to fuel and food retailing rather than the vagaries of the oil price. Over the past five years, ALD has transitioned from a capital-intensive business with volatile earnings dependent on global refining margins to one that is increasingly based on fuel and convenience retailing and has brought franchised service stations in-house. ALD trades on an undemanding = 15x forward earnings with a 5% fully franked dividend yield.

 ALD finished up +0.9% to $29.40, following an +8% increase on Friday