Ampol (ALD) – Refinery margin squeeze

Ampol is an independent Australian company involved in fuel marketing, refining, and convenience retail Ampol Limited was founded in 1900 and is headquartered in Alexandria, Australia.

Ampol guided to CY25 earnings before interest and tax (EBIT) of $945 million, matching consensus estimates but modestly short of Ord Minnett’s forecast, with management commentary signalling growth in all divisions bar the New Zealand operations where EBIT is expected to be flat on a year ago. The December-quarter refining margin came in at US$15.14 a barrel, in line with market expectations, as the company drove its Lytton refinery in Brisbane hard to gain maximum advantage from strong margins.

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The disappointment in the trading update, however, was the omission of any commentary on the refining margin outlook despite previous commentary on how well margins were holding up in December. This omission is unusual for Ampol and suggests to us that margins have narrowed significantly in January – we calculate the refining margin has shrunk to around US$8 a barrel. Accordingly, Ord Minnett now expects a first-half CY26 refining margin of only circa US$9.00 a barrel, before recovering somewhat to US$11.00 a barrel in the second half of the year. By comparison, prior market expectations were for a CY26 refining margin of US$11.00 a barrel.

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Post the trading update, Ord Minnett has cut its EPS estimates by 7.7%, 22.6% and 3.5% for CY25, CY26 and CY27, respectively, to incorporate our downgraded refining margin forecasts and a lagged improvement in the New Zealand business, leading us to cut our target price to $35.50 from $37.00. We maintain our Buy recommendation on Ampol on valuation grounds and our view that the market is not fully pricing the likely benefits from the EG Australia acquisition.

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