Speculation persists in the market that Ampol is in the box seat to buy the EG Group convenience retail business in Australia, which analysts estimate is worth at least $1.5bn.
EG Group has 525 fuel and convenience stores across the country, and analysts at JPMorgan continue to view Ampol as the most logical buyer given it is the exclusive supplier and EG stores are branded Ampol.
The EG stores in Australia made $256m in earnings before interest, tax, depreciation and amortisation in 2023 and precedent transactions in Australia and New Zealand have been conducted at a range of multiples between 6 and 8.5 times enterprise value to EBITDA, say the analysts implying a range of valuations of $1.5bn to $2.2bn.
“Given Ampol is the only obvious acquirer at the moment and that EG Group itself has impaired the assets to an estimated carrying value of $1.5bn since it acquired them in 2019, we would expect a transaction value at the lower end of the range if it materialises,” the analysts said.
While such a transaction would need to be at least partly funded by equity, they said it would be ultimately positive for Ampol given the potential for value accretion through synergies.
However, they point out that EG Group’s Australian assets are less profitable than Ampol’s and have underperformed peers in recent years.
Their value could also have diminished since EG Group made the acquisition from Woolworths in 2019 for $1.7bn.
EG Group has impaired the Australian business by up to $335m since acquiring it.
The analysts said they saw earnings accretion for a transaction up to a price of $1.6bn before synergies.
However, Ampol’s debt level would likely increase to between 50 and 60 per cent, which may prompt an equity raising.
“Depending on the size and price of a raising, it could further diminish value. Therefore, Ampol may be reluctant to pay that high a price for EG Group,” the analysts said.
Shares in Ampol closed down 35c to $35.64, with its market value at $8.6bn, falling from its 2024 high in April.
Should Ampol emerge with EG, it will probably need to sell some service stations to appease the competition regulator.
But the deal would come at a time of high fuel prices.
Banks previously close to EG Group include Barrenjoey, Rothschild & Co, Goldman Sachs, Morgan Stanley and Barclays.
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