The prospect of no Australian oil refineries from next year loomed large from Ampol’s musings on Monday, with the company showing a keen resolve to focus on shareholder interests.
Chief executive Matt Halliday left the decision open, saying it was considering different options including the government’s desire to keep refineries going for fuel security reasons, but he is not as sure as Energy Minister Angus Taylor of the need for a refinery for fuel security.
The market was impressed with Halliday’s resolve, with a $300m share buyback from the proceeds of a $635m sale to Charter Hall of a share in the retail trust over its petrol sites.
Retail boss Jo Taylor also impressed in showing the potential for the convenience retail model that will boost earnings by $85m over the next four years.
Convenience retail has come into its own during COVID-19 and Taylor has shown she is prepared to cut costs by doing away with baristas at some of her Metro sites with Woolworths.
Taylor showed true Ampol credentials, saying she was “slowing down to speed up” in terms of the store rollout, which means she wanted to get it right before putting her foot on the accelerator.
This from a company that has revelled in the use of consultants to work out which day of the week it is that was a hallmark of Caltex of old under predecessor Julian Segal.
Given few in the market had anything in their numbers for convenience-store earnings growth, evidence that the metro stores were pulling in revenue of $70,000 a week at a gross margin of 40 per cent with less labour and lower costs was impressive.
Now with all the retail sites under Ampol control and 600 sites now considered core, up from 500, the trick is to show the excellent sales performance on a bigger scale.
Halliday gave a view on his plans, saying he was looking at buying the Puma import terminal in Kwinana, south of Perth.
After BP said it would shut its Kwinana refinery, there are now only three left, including the Mobil site in the Melbourne suburb of Altona.
The refineries share capacity with each other but all three are underwater financially, with imports selling at below the cost of local refining.
Viva will consider its future at a board meeting next month, but given the Ampol delay it too could defer a final ruling on the Geelong refinery.
Ampol’s Lytton refinery in Brisbane is now back and running after a shutdown, but for how long remains to be seen.
KPMG’s share plan
KPMG’s Grant Wardell-Johnson has proposed a new two-year employee share grant to help align the company with staff during the COVID-19 recovery.
“It would allow employees to acquire a higher value of tax-free shares, and employers to get a higher tax deduction for issuing the shares than is currently available under existing tax rules,” he said in a statement.
“International evidence shows employee share schemes can be an effective way of boosting both job satisfaction and performance improvement, but our current rules are quite restrictive.
“We believe our proposal would be more tax-effective for employees than a cash bonus, while, crucially, allowing hard-hit employers to incentivise workers while preserving more cash.”
The Wardell-Johnson plan would allow a maximum $3000 in shares to be granted tax-free in the two-year scheme with a 50 per cent capital gains tax discount on any sale.
An employee earning $80,000 would get $3982 in value on sale assuming a 50 per cent capital gain against $2778 for an employee who acquired the shares after tax.
The capital gains tax on the share parcel worth $4500 would be $518 under the share scheme and $170 on the after-tax share value at $2948.
The shares would be subject to a three-year restriction unless the shares increased in value by 50 per cent in the interim.
For a capital-constrained company, this would be an ideal way to reward staff.
Bega deal nears
Bega’s Barry Irvin is at the stage of exclusive final negotiations with Kirin over the mooted $550m-plus acquisition of Lion Dairy expected to be wrapped up this week.
Bega is in a four-day trading halt to give it time to work out how to raise the money for the bid, which will add up to closer to $800m before synergy benefits, estimated at $70m a year.
This is Bega’s first significant entry into milk and yoghurt, but if the deal goes through it will control five out of the seven processing plants in NSW.
It has a joint venture with Lion supplying the ACT market.
The deal was forced on Kirin by Josh Frydenberg’s decision in August to overrule FIRB advice at the official level and reject a planned $600m acquisition from China’s Mengniu Dairy. Kirin has moved quickly to get a replacement deal.
The ACCC has already given Bega the green light for the deal, but rival bidder Tanarra Capital tried to raise competition concerns last week.
Another one-time bidder, Saputo, was being examined by the ACCC and pulled out last week due no doubt to some concerns being raised.
There are clearly synergy benefits, but the reality is with a market capitalisation of $1.1bn and debt to equity of about 1.8 times, the Bega balance sheet is stretched.
Bega is looking at raising $400m in equity at about $4.50 a share and the rest on debt.
Subscribers to its two most recent equity raisings are under water with the last for $250m in 2018 at $7.20 a share, and before that $160m at $5.35. The stock has underperformed the market by 29 per cent over five years, by 45 per cent over three years and magically outperformed ahead of an equity raising by 26 per cent over the past 12 months.
Bega closed at $5.06 ahead of the trading halt.
Its backers include Perpetual, Byron Bay-based Peter Cooper and Ethical Investors.
Bega’s Irvin has been a big spender in his recent expansion including the $460m Mondelez deal that gave him Vegemite and Peanut Butter and $250m for the Koroit dairy from Saputo.
Since the 2016 financial year, revenue has increased from $1.2bn to $1.5bn but earnings per share have nearly halved to 9.9c and return on capital has slumped from 11.6 per cent to 5.4 per cent.
Bega is a protected species on the ASX, being one of the few companies with a 15 per cent limit on buying its shares.
The increased costs faced by Bega include insurance, with Lion enjoying a Kirin discount that will push the annual costs from $7m to $20m. Then there are labour and environmental costs for a proposed plant closure at Penrith and IT separation costs.
Irvin has so far won market blessing for his expansion plans but at some stage shareholders will ask him just where and when the increased returns will come.
JPMorgan banker to lead Carlton
AFL club Carlton has announced that JPMorgan banker Robert Priestley will become club president, replacing Luke Sayers, who stepped aside following a lewd photograph scandal.
Inherited wealth a ‘scar’: why $600m tech king is giving it away
When Bruce Buchannan debuts on The Richest 250 list with over $600m to his name, it’s an accolade that won’t sit comfortably with the self-made millionaire who prefers the nitty gritty.