Ampol’s cracking half-year result has the company barrelling headlong towards a very large share buyback. The market is asleep at the wheel here valuing the company at just 10x FY22f EPS and a 5.7% dividend yield.
ALD’s 1H22 group RCOP EBITDA of $927 million was about 5% ahead of consensus. The 1H22 net profit of $471 million was an exceptionally strong result, fabricated on the back of a Lytton Refining Margin (LRM) that reached extraordinary heights (Figure 1)and a surprisingly good non-Lytton F&I (Fuels and Infrastructure) EBIT of $172.9 million (2Q22 $109m).
Only Convenience Retail modestly spoiled the outcome as a softer 2Q22 of $50 million EBIT brought the 1H22 retail EBIT to $127.3 million, down 14.8% on last year.
Z Energy contributed two months of EBIT at $13.7 million, which included ~$7 million of one-off costs. ALD remains confident it can achieve NZ$60-80 million of synergies.
The July LRM has come back to US$16.46/bbl after the US$35/bbl seen through May and June. Assuming an average long term refining margin of US$12.50/bbl, and net debt heading towards a (lease adjusted) $2.6 billion by year end, leverage would be close to 1.4x. ALD’s target range is 2.0-2.5x. Even assuming ALD’s refining earnings came down to the Government support level, leverage would land near 1.5x in FY23f leaving a gap of ~$700 million back to the bottom end of the target range. If an average long term refining margin of US$12.50/bbl is achieved, leverage at the end of FY23f would be just 1.2x leaving scope for a buyback in the order of $1.4 billion or about 17% of ALD’s market capitalisation. We note ALD has about $600 million of franking credits available for distribution.
Investment view
Last year’s AFL Premiers, the Melbourne Demons, had not won a flag since 1964 and yet they turned their fortunes around. ALD won’t win an AFL flag but its performance so far in FY22 has them on track for a finals placing as one of the ASX’s best performers in 2022, surely. The $471 million of RCOP net profit in 1H22 was more than the prior 18 months combined.
The July LRM was mildly disappointing , but the recent rise of crack spreads once again (for diesel particularly) has the August marker on alert for a better number. Consensus numbers suggest 2H22 LRM at US$18/bbl.
Figure 1: group (rcop) ebit and refining margin
Figure 2: 1H22 group (rcop) ebit
