The spread/margin between the Ampol 2081s (callable March 2027) and Ausnet 2080s (callable October 2025) is at their widest level in the past 1 year. Both Baa3/BBB- but Ausnet has out performed over the past year and now trades almost 100bps inside Ampol – so investors should consider a switch.
For investors, the Ampol 2081s offer a 7.4% yield that matures in March 2027. Ampol supplies fuel to cars, trucks, and planes through almost 2,000 sites across Australian and offers a fuel refinery in QLD. It also earns a third of its revenue by selling items from convenience stores attached to its sites.
|Rating||Baa3 (BBB- equiv)|
|Coupon Type||Floating Rate Note|
|Coupon||90d BBSW + 3.40%|
|YTM||3m BBSW+3.65% (~7.41%)|
|If not called||3m BBSW+4.75%|
Key things for investors to consider:
1. Australian vehicles overwhelming run-on fuel and any transition to EVs will be gradual
2. Profit margin is all about scale and brand when selling a commodity product and Ampol is the largest fuel distributor in Australia
3. Partnering with Woolworths is a great match that adds fresh food and extra brand recognition to Ampol’s network of metro locations
4. Government policy to provide top-up payments to Ampol’s refinery when times are tough will help the company’s earnings stability
5. EVs pose a risk but are outside the scope of the bond term and will take decades to play out
Alongside Ampol’s pristine balance sheet, a switch from the Ausnet 2080s makes complete sense from a risk/return perspective. The spread/margin of 100bps, more than accounts for the additional 1.5 year term for what we would consider a credit with a positive outlook.