Ampol pumps up profit but faces doubts over future growth in face of EV switch

Ampol staged a strong result, with annual net profit up 39.6 per cent at $727.5m for its current operations. Picture: Sarah Marshall

Ampol may have staged a strong result, with annual net profit up 39.6 per cent at $727.5m for its current operations, but weighing on the mind of management will still be its growth in the future.

The challenge for Ampol is that, while it is a strong performer now, over time demand for fuel is expected to fall rather than grow if predictions of the prevalence of electric cars are correct.

Sure, fossil fuel is not going anywhere fast, but electric vehicles could hurt Ampol’s earnings growth profile.

While the company is rolling out fast chargers for electric cars at five pilot locations, and about 100 locations are targeted for this year, some think Ampol needs to pivot into a whole new industry.

Its skills are in retail, with its fuel convenience stores across Australia and New Zealand, chemicals, given its long history refining fuel, and also energy.

Already, Ampol’s name has emerged in several sale processes, such as that for Meridian’s renewable energy assets, and it has even been discussed in the past as a suitor of AGL Energy.

It has weighed up selling Ampol power packs for homes, although that space is highly competitive, where industry experts Origin Energy and AGL are dominant forces.

Rival Viva Energy faces the same dilemma and it seems it has picked chemical distribution as a diversification opportunity, with it recently surfacing as a bidder for the Ixom chemical distribution and manufacturing business.

Retail is another area it could focus on, but there seems no obvious targets Ampol is eyeing in this area.

A major transition to electric vehicles, if it unfolds as expected, is likely to be decades away, so there is no pain to Ampol’s earnings in the short term.

But what it does mean is that a private equity firm will be thinking twice about buying the business because of fewer options to sell it to others in the medium term for this reason.

Groups such as Brookfield and BGH Capital are believed to have thought about it in the past, but opted to side step the opportunity.

The other problem is that investors may shift their money away from the stock, as they have done with coal companies because of the long-term growth prospects, and would pressure the company for capital returns without providing support for long-term investment.

Ampol declared a special dividend of 50c a share tied to the sale of its New Zealand assets following its Z Energy acquisition, and it declared a final dividend of $1.05 a share.

But unless Ampol can make an acquisition to provide a defensive aspect to the company with the transition towards electric vehicles and sell it to investors, it will remain under pressure to return high levels of capital to its shareholders.