In a similar story to Viva Energy, Ampol Australia's third quarter was heavily affected by lockdowns in NSW, Victoria and New Zealand. Fuel and shop sales were squashed but will revive quickly as the state economies re-open. Refinery earnings were surprisingly good considering the situation.
Fuels and Infrastructure EBIT (ex-Lytton) of $61 million was very good although it did include a $9 million FX gain.
Convenience Retail EBIT of $33 million was afflicted by the lockdowns and there was little more news to inform on its performance. Fuel volumes declined 16% compared to last year and the second quarter of this year. A further 10 sites were converted to the Woolworth's Metro format taking the total to 20. Over 600 sites have now rebranded to Ampol.
The Refining EBIT of $22 million contained a few notable features, particularly the fact that no government support was received in the quarter. ALD reported the Lytton Refiner Margin was US$6.76 for the quarter, including the impacts of the Alkylation Unit T&I. Total production was 1,565 ML for the quarter.
Just as NSW and Victoria begin to re-open, crude and refined product prices are increasing. ALD says this will benefit Lytton's profitability but will temper retail margins in the short term.
Investment view
Unusually for ALD, everything seems to be pointing in the right direction. The end of lockdowns will coincide with the return of both domestic and international aviation, benefitting the ex-Lytton F&I business.
In Convenience Retail, competitive behaviour appears to be very rational allowing the full benefits of returning volumes to be captured. Only increasing crude prices will take the edge off this business. The big rebranding is mostly complete and the associated marketing drive will hopefully pay its way.
Refining margins will probably remain volatile, but the new regime sees the government taking most of the downside risk. A decent level of capacity closures and the return of diesel and jet market demand will help things along very nicely.
The Z Energy acquisition is set to be highly earnings accretive for ALD, adding an extra dimension to the outlook for the group.
It has take a very long time for ALD's stars to align, but the net result for shareholders will be an abundance of free cash flow.
Consensus forecasts do not appear to have caught up with the post-acquisition reality so the share price is not yet reflecting its fair value. Markets may still face disruption from potential future lockdowns, but that risk is clearly subsiding.
We have retained our Buy recommendation on ALD.
