S&P/ASX 200 Index (ASX: XJO) energy share Ampol Ltd (ASX: ALD) has been backed by a fund manager with high conviction in the business.
The fund manager in question is Contact Asset Management with its Ex-50 fund, meaning it doesn't invest in the biggest 50 ASX shares. This fund is looking for quality companies that can provide a mixture of growth and passive income, and deliver total returns per annum of more than 10%.
In its most recent monthly update, Contact noted that there has been a lot of volatility recently and that the Reserve Bank of Australia's (RBA) interest rate rises and inflation is hurting the consumer discretionary sector. Trading updates for many retailers were "soft". It thinks high-quality companies will perform best during (macro) uncertainty.
Contact believes the companies in its portfolio have fundamental strength, generate profits, produce positive free cash flows and achieve attractive returns on equity (ROE).
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The positive case for the ASX 200 energy share
Contact revealed that it has further increased its exposure to Ampol, and the business is now its largest position.
The fund manager explained that Ampol has "several strategic assets", dominated by the Lytton Refinery, six pipelines and 24 terminals. The company also has 2,350 retail sites, which "further highlights the significant barriers to entry."
Contact thinks that "demand for fuel will continue for some time yet" and the company is "already investing ahead of the curve into electric vehicle fast-charging to future-proof the business."
The fund manager's investment thesis is based on continued growth in the convenience store business alongside fuel demand, which "generates significant cash". Contact also likes that the passive income coming from the ASX 200 share is strong, saying that the fully franked dividend yield of 6% is "attractive".
Latest trading update for Ampol shares
At the end of April, the business gave an update for the first three months of 2023.
Total replacement cost operating profit earnings before interest and tax (RCOP EBIT) was $345.4 million, up 82%.
Group total fuel sales volumes were up 50%. It benefited from Australian fuel sales volume growing by 14%, the addition of Z Energy volumes and "beneficial timing" of international third-party spot sales.
The Lytton refiner margin (LRM) was US$14.90 per barrel in the first quarter, above historical levels.
Ampol also said that the repair to the slide valve at the Lytton refinery is "on track".
Things seem to be going well for the business.
Ampol share price snapshot
As we can see on the chart above, the ASX 200 energy share has risen by around 10% since the start of 2023.
