RBC Capital upgrades Ampol stock rating to Outperform on refining gains

RBC Capital upgraded Ampol Limited (ASX:ALD) to Outperform with a AUD35.00 price target, driven by a 20% increase in Singapore diesel crack spreads during Q3, which its Lytton refinery is expected to largely capture. The firm anticipates Ampol will benefit from a higher Lytton Refining Margin in H2 2025, $20 million in cost savings, and a low-risk, attractively priced EG acquisition. This positive outlook suggests Ampol will deliver stronger Q3 refinery results compared to competitor Viva Energy, which is impacted by major maintenance.

Analysis

RBC Capital has upgraded Ampol Limited to Outperform, establishing an AUD35.00 price target based on a confluence of positive factors. The primary catalyst is a 20% increase in Singapore diesel crack spreads during the September quarter, a macro tailwind that Ampol's Lytton refinery is expected to largely capture. This supports RBC's expectation for a higher Lytton Refining Margin (LRM) in the latter half of the year. The firm's outlook is further bolstered by an anticipated $20 million in cost savings and a favorable view of the EG acquisition, which is considered low-risk and attractively priced, assuming the successful realization of synergies. Critically, Ampol is positioned for stronger near-term performance relative to its competitor, Viva Energy, which is currently facing operational headwinds from major refinery maintenance. This combination of favorable market conditions, internal cost efficiencies, strategic M&A, and a competitive advantage underpins the bullish revision.

Key Decisions for Investors

• Given the analyst upgrade and strong sector tailwinds from rising diesel crack spreads, investors should consider the bullish case for Ampol, which is supported by multiple company-specific catalysts.
• Ampol's expected outperformance relative to competitor Viva Energy, which is impacted by refinery maintenance, presents a potential pair trade opportunity or a reason to favor Ampol for sector-specific allocation.
• The investment thesis is contingent on several factors; therefore, it is prudent to monitor the persistence of elevated refining margins, the execution of the $20 million in cost savings, and the successful integration of the EG acquisition to achieve projected synergies.