The S&P/ASX 200 Index (ASX: XJO) share Ampol Ltd (ASX: ALD) hit a 52-week low of $24.52 today. As the chart below shows, the ASX energy share has been steadily declining.
While energy prices have declined in recent times, as my colleagues have covered, the business was recently upgraded to a buy by the broker UBS at the end of February 2025 after seeing the company's FY24 result.
UBS describes the company as one of the leading transport fuel marketers and convenience store operators in Australia, supplying more than 28% of Australia's transport fuel demand. Its operations are focused on procurement, refining, distribution, and the sale of fuels, lubricants, and a range of specialty products. It owns and operates the Lytton refinery in Queensland and the Z Energy business in New Zealand.
Let's look at what the company reported and why the broker is excited about the ASX 200 share.
Earnings recap
Ampol reported that for the 12 months to 31 December 2024, its underlying operating profit ('replacement cost operating profit (RCOP) EBITDA excluding significant items') fell 32% to $1.2 billion.
Underlying RCOP earnings before interest and tax (EBIT) (excluding significant items) sank 45% to $715.2 million, underlying net profit after tax (NPAT) declined 68% to $234.8 million, and statutory net profit plummeted 78% to $122.5 million.
Management explained that it was a challenging year for global refining and commodity markets, which impacted both its Lytton refinery and trading and shipping operations. While there were also operational disruptions at Lytton, it took advantage of the weaker conditions to make necessary repairs.
Why is the ASX 200 share an opportunity?
The oil price recently hit a three-year low, which shows the challenge for a fuel business like Ampol.
UBS upgraded its view on Ampol to a buy, with a price target of $31.40. A price target is where the analyst thinks the share price will be in 12 months. Therefore, the broker is suggesting the Ampol share price could rise by 27% in the next year.
The experts at UBS suggest its lower valuation is appealing after a "cyclical low" in refining during 2024.
When the Ampol share price was $26.09 – it's lower now – UBS said the ASX 200 share was trading at 8.3x FY26's estimated EBIT. This was a 19% discount to the five-year average (and Ampol shares are even cheaper now).
UBS expects cyclical drivers to recover and sees a "much improved outlook" for Ampol in 2025.
The broker is only expecting a moderate increase in refining margins, but UBS is now forecasting EBIT growth across all business units, supporting overall EBIT growth at a compound annual growth rate (CAGR) of 22% between FY24 and FY26.
UBS expects the ASX 200 share's earnings multiple to increase and support stronger dividends in FY26. It is forecasting a dividend per share of $1.41 in the 2026 financial year. If refining margins beat UBS' "conservative forecast", there could be upside through capital management/cash returns to shareholders.
