Ampol (ASX:ALD) share price sinks on half year results and acquisition news

This fuel retailer's shares are on the move on Monday…

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The Ampol Ltd (ASX: ALD) share price is falling on Monday following the announcement of its half year results and a major acquisition.

At the time of writing, the fuel retailer's shares are down 5% to $26.20.

Ampol share price falls on results and acquisition announcement

  • Fuels & Infrastructure EBIT up 86% to $208 million
  • Convenience Retail EBIT increased 19.2% to $149 million
  • Corporate costs lifted 12.5% to $18 million
  • Group RCOP EBIT jumped 53.8% to $340 million
  • RCOP net profit after tax up 70.8% to $205 million
  • Fully franked interim dividend of 52 cents per share
  • NZ$2 billion offer to acquire Z Energy

What happened during the first half for Ampol?

The Ampol share price is trading lower today despite the company reporting a significant jump in profits and a potential acquisition.

For the six months ended 30 June, the fuel retailer reported a 70.8% increase in RCOP net profit after tax to $205 million. A key driver of this was its Fuels & Infrastructure business, which delivered an 85% increase in EBIT for the period. However, this was largely due to the improvement in profitability of the Lytton refinery and the receipt of the Federal Government's Temporary Refining Production Payment of $40 million.

This was supported by a 19.2% increase in Convenience Retail EBIT to $149 million. Management advised that this reflects continued improvement in shop performance and the $14 million benefit of lower depreciation due to the impairment of Convenience Retail sites a year earlier. This helped offset compressed fuel margins during the period.

Also failing to give the Ampol share price a boost today was news that it has tabled a non-binding indicative proposal to acquire Z Energy Ltd (ASX: ZEL) for a cash offer price of NZ$3.78 per share. This represents a 35% premium to its close price on 26 July 2021, which is the day prior to the first media speculation in relation to corporate activity involving Z Energy. It values Z Energy's equity at NZ$2 billion.

The Z Energy Board has granted Ampol a four-week period of exclusivity for it to undertake confirmatory due diligence.

What did management say?

Ampol's Managing Director and CEO, Matt Halliday, said: "The first half of 2021 has been pivotal for Ampol. We finalised our Lytton review, with a commitment to continue operating to support the dual objectives of fuel security and energy transition in partnership with government. In addition, the launch of our Future Energy and Decarbonisation strategy provides a pathway to build new lower emissions energy solutions for our customers into the future."

"The business also continues to perform strongly as we execute the delivery of our growth strategies in challenging conditions. In addition to improved performance in our core Australian fuels business, we continue to grow earnings in our International and Convenience Retail businesses in line with our earnings growth targets," he added.

Commenting on the proposed acquisition of Z Energy, Mr Holiday said: "Z Energy is a logical growth opportunity for Ampol as both companies are market leaders in their respective home markets and have very similar business models. A successful acquisition would create an A&NZ leader in fuel, with significant regional scale and trusted and iconic brands on both sides of the Tasman."

What's next for Ampol?

One thing that could be weighing on the Ampol share price today was its outlook commentary.

Management revealed that it has had a difficult start to the second half due to lockdowns. So much so, fuel volumes were down 15% in July and down 18% in August through to 15 August.

As a result, it notes that its current run rate suggests Australian fuel volumes will be below the previous guidance range of 13.5 billion to 14.0 billion litres.

Furthermore, shop sales were down 16% in July and 17% in August through to 15 August.

Nevertheless, management appears positive on its longer term outlook. It notes that the market has shown that demand and sales recover quickly when restrictions ease and there are signs that retail margins are providing a partial offset to the volume weakness.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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