On Tuesday, RBC Capital adjusted its stance on Ampol Limited (ALD:AU) (OTC: CTXAF), downgrading the stock from Outperform to Sector Perform. The firm also revised the price target for the company to AUD33.00, a decrease from the former AUD36.00 target.
The revision follows a reassessment of Ampol's second-half earnings for 2024, which are expected to be impacted by a forecasted dip in refining margins and the effects of maintenance work at the Lytton refinery.
The downgrade is attributed to RBC Capital's anticipation of reduced earnings from Ampol's refining operations in the latter half of 2024. This outlook is based on the expectation of a lower realized refining margin and the operational impact from the Lytton refinery's turnaround and inspection (T&I) work scheduled for the third quarter.
However, RBC Capital notes that there may be a slight improvement in Ampol's Fuel & Infrastructure International segment, as the company plans to source volumes offshore and draw down inventory to compensate for the 300 ML of refined product volume that will be unavailable due to the 3Q T&I work.
Moreover, RBC Capital has increased its forecast for Ampol's debt expenses following a reported interest expense in the first half of 2024 that exceeded the firm's predictions.
Additionally, RBC Capital has updated its valuation approach for Ampol, moving from an EBITDA multiple-based method to a discounted cash flow analysis. This change aligns with the firm's valuation methodology for Viva Energy.
Due to these combined factors, RBC Capital has reduced its earnings per share (EPS) forecast for Ampol by 12% for 2024 and by 3% for 2025. The revised price target and stock rating reflect the firm's recalibrated expectations for Ampol's financial performance in the coming years.
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