Is Ampol Ltd (ASX: ALD) an S&P/ASX 200 Index (ASX: XJO) stock that should be on more investors' radars?
Ampol shares have lifted by 16% in the past four months, which is a solid rise. The ASX 200 has risen by 12% over the same time period, so the energy company has outperformed the index by 4%.
Ampol describes itself as Australia's leading transport energy provider – it used to be known as Caltex Australia. The company supplies Australia's largest branded petrol and convenience network, as well as refining, importing and marketing fuels and lubricants. It also recently launched its electric vehicle charging solutions.
Ampol operates 16 terminals, six major pipelines, 55 'wet' depots and more than 1,800 branded sites (with 690 company-operated sites).
Expert thoughts on the FY23 result
The broker UBS described Ampol's 2023 full-year result as "solid", with a special dividend (of 60 cents per share) slightly ahead of what the market was expecting.
After returning $1.3 billion to shareholders at a dividend payout ratio (including special dividends) of 89% of RCOP net profit after tax (NPAT) in FY22 and FY23, UBS thinks investors will be focused on the sustainability of the capital return. The company's guidance for FY24 and FY25 capital expenditure is approximately 30% higher than what the market (consensus) was expecting.
UBS believes Ampol's balance sheet has the capacity to absorb higher costs, with debt levels remaining below its target range, despite the increase in capital expenditure.
The broker has forecast "fairly resilient" group earnings before interest and tax (EBIT) for the ASX 200 stock despite higher capital expenditure at the refinery, as well as investments in lower-returning assets like electric vehicle charging. However, this may challenge the sustainability of the capital return over the next few years.
Even though there has been cost-of-living pressures and falling tobacco sales, Ampol's convenience retail division has "held up" thanks to a shift of sales to higher-margin products. It's forecasting flat convenience EBIT between 2023 to 2027 as fuel margins normalise.
Is the Ampol share price a buy?
UBS reduced its earnings per share (EPS) forecast for 2024 by 8% and increased its 2025 EPS forecast by 11%, having brought forward the Lytton turnaround.
UBS has a neutral rating on Ampol shares, with a price target of $34.40, suggesting the Ampol share price could fall by around 10% over the next year.
The ASX 200 stock is valued at under 14x FY24's estimated earnings, according to UBS' numbers.
