Robust returns from convenience retailing are set to tip Ampol into record earnings territory for 2023, more than offsetting woes at the company’s only refinery, but the outlook was slightly weaker than anticipated and sent the shares lower.

Shares in the petrol and diesel supplier, which reached a nine-year high in early January, were down 2.7 per cent at $35 on Thursday.

Ampol cited a “consistently strong” performance in its convenience retailing business in Australia and an improved result at its Z Energy business in New Zealand as the reasons that earnings before interest and tax should be “slightly ahead” of 2022’s group record.

The fuels and infrastructure business, excluding the Lytton refinery in Queensland, also performed strongly, underpinned by gains in the trading and shipping division in the September quarter, the former Caltex Australia said on Thursday.

At Lytton, earnings and fuel volumes were hit by an unexpected outage at the plant in late December, although it has since returned to normal operations.

The volume of fuels produced at the refinery in the fourth quarter slipped to 1.43 billion litres, down from 1.58 billion in the December quarter of 2022.

The refiner margin at the plant, representing the gross profit made on converting a barrel of crude oil into a barrel of petrol, diesel and jet fuel, averaged $US10.52 per barrel in the fourth quarter, down from $US11.76 per barrel in the same quarter a year earlier and lower than some analyst estimates.

RBC Capital Markets was forecasting the refiner margin at the plant would average $US14.50 a barrel in the December quarter and was also anticipating higher throughput, of 1.565 billion litres, roughly flat with the third quarter.

RBC energy analyst Gordon Ramsay described the trading update as “mixed”, noting that the commentary implies full-year EBIT will be roughly in line or slightly below consensus estimates of $1.308 billion.

He said the outlook implies that the convenience retailing business, Z Energy and the non-refinery business have performed more strongly than anticipated, likely ahead of consensus estimates, and suggested it paves the way for a capital return to shareholders, something the market has been eyeing for months.

“We view the non-refining earnings as higher quality with generally a stronger free cash flow conversion compared to the refining business,” Mr Ramsay said in a note.

“This supports Ampol’s cash flows for the second half of 2023 and underpins our view that Ampol is positioned for capital management at its full-year result.”

However, E&P Capital halved its assumption of a $1 a share special dividend for shareholders to be announced in February to 50¢ a share. Analyst Adam Martin said Ampol’s comments implied a circa 3 per cent improvement in EBIT in 2023 to close to $1.31 billion, which he said was about 4 per cent below what he had been forecasting.

JPMorgan also slightly trimmed its 2023 earnings estimates on the outlook.

Ampol’s unaudited forecast for higher EBIT for 2023 on a replacement cost and continuing basis compares with $1.27 billion in 2022, which was more than double the comparable figure from 2021.

The company, led by chief executive Matt Halliday, said the narrower margin was caused by an increase in premiums of crude oil imports and reduced spreads for refined products compared with the July-September period.

The fourth-quarter refiner margin was still well off the lows experienced during the COVID-19 pandemic that put the whole domestic refining sector under extreme financial pressure and prompted the government to put in place a $2 billion “fuel security” package to prevent further shutdowns.

The Sydney-based fuels supplier acquired 100 per cent of New Zealand service station owner Z Energy in May 2022, completing a deal struck the previous October.

Extracted in full from:  https://www.afr.com/companies/energy/convenience-retail-to-tip-ampol-into-record-territory-20240118-p5ey6c

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