Ampol Limited (ALD)
BUY

Dodgy valve halts cracker

 27 Mar 2023
Sector: Energy

CRACKING UNIT MAINTENANCE HALT

Need To Know

  • Cracking Unit at Lytton Refinery out until May
  • EBIT impact estimated $30-50m
  • Strong market conditions persisting

Ampol’s Lytton Refinery has ceased operating its catalytic cracking unit to repair a faulty valve. The refinery itself will continue to produce jet and diesel fuel, with only the production of gasoline affected.

ALD estimates the EBIT impact of the outage to be between $30-50m including the repair cost and lost sales of gasoline at currently elevated product cracks.

Investment View

The Lytton Refining Margin (LRM) was US$18.40/bbl in January and may likely deliver a 1Q23 LRM at or above the US$17/bbl needed to offset the estimated cost of this outage. The outage itself is frustrating given the high prices still being enjoyed but like any aged piece of kit that has ignored its middle-age spread, health issues are inevitable.

There are multiple options for ALD to work around the production interruption so the ultimate outage cost could be mitigated to some extent. Fortunately, with jet and diesel production unaffected and still seeing high cracking prices, there is a rainbow to the situation.

Retail margins in 1Q23 are 3-4% stronger than FY22 and likely to be on higher volumes too. ALD noted that market conditions have continued to be favourable for its integrated business so investors should take comfort in that statement.

ALD continues to look cheap on a sub-12x PE ratio and ~6% fully franked dividend yield. The Board has ample room for further capital management activity with ~$750m returnable over FY23f on a conservative balance sheet.

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Stock Overview

Share Price

Company Overview

Ampol Australia is an independent transport fuel company. It owns and operates the Lytton Refinery in Queensland. ALD has acquired Z Energy in New Zealand for NZ$2bn. In total, ALD will have approximately 2,400 sites supplying ~23.5 BL of fuel pa.

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