Ampol (ALD): This morning, ALD released their full-year 2022 financial results, which confirmed why we own the stock.

Key Points:

  • Record Profits: Full-year net profit of $763 million, up +129% in 2021, with ALD not only cycling some weaker comps from 2021 but all segments firing on all cylinders. Fuel volumes were up +12%, primarily due to jet fuel sales. The star division was the long-term problem child refining, which reported an EBIT of $687 million, up from $158 million in 2021, and benefited from record refining margins and a full year of uninterrupted production. It is amazing that in May 2021, Australia’s two remaining refiners (Ampol & Viva) extracted $2 billion in subsidies from the government to not shut their refineries before 2027. Convenience profits were much better than expected, with higher profit margins from an enhanced product mix. ALD has refreshed the stores rebranding the entire 1,800-store network as Ampol and increasing sales by expanding the Foodiary concept and partnering with brands such as Boost Juice and Guzman y Gomez.
  • Z-Energy Acquisition Looking Good: In 2021, ALD bid for NZ’s largest fuel retailer, with 330 service stations under the Z and Caltex Brand supplying 3-4 billion litres of fuel. ALD is now the largest fuel retailer in New Zealand, shuffling its cards, buying the market leader and then selling the #3 Gull to private equity as part of the deal for $522 million. The result saw eight months of Z-Energy profits with synergies running at $50 million,
  • Dividend also up:  Full year dividend $2.25 per share +159% on 2021 fully franked = 6.9% yield
  • Plus a special dividend!:  Additionally, ALD is paying a fully franked 50-cent special dividend. This special is being funded from the proceeds from selling 49% of the acquired Z-Energy sites in New Zealand to Charter Hall in late 2022.
  • Tax Office of their back: ALD has been involved in a long-running dispute with the ATO over the treatment of profits made in Singapore over trading petrol. ALD will pay $5.6 million in tax on profits made between 2014-2021, an excellent outcome for shareholders with ALD provisioning $110M in tax liabilities on their balance sheet, which will be written back!
  • Guidance: No explicit guidance was given, but 2023 has started off well; refining margins are still very strong (thanks, Putin!), and fuel volumes are up +19% as the economy continues to re-open. On the call, management discussed the potential for further capital management in 2023. One of the reasons why we like ALD is management’s shareholder-friendly approach to returning capital and franking credits to investors.

Ampol is held in several of the HNW portfolios and isis the core energy exposure in the Portfolio, but with greater exposure to fuel retailing rather than the vagaries of the oil price. Over the past five years, ALD  has changed itself from a capital-intensive business with volatile earnings dependent on global refining margins to one increasingly based on fuel and convenience retailing and bringing franchised service stations in-house. ALD trades on an undemanding = 9x forward earnings with a 6.9% fully franked dividend yield. The return of suitors EG or ACT would be positive share price catalysts, especially with the government underwriting refining profitability and giving the company $125 million to improve their assets to produce ultra-low sulphur petrol.

ALD finished up +2% at $33.40.