Guess which ASX 200 energy share is this fund manager's biggest investment

Here's one stock idea to get energised about.

| More on:
A smiling woman puts fuel into her car at a petrol pump.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • ASX 200 energy share Ampol has been named as an opportunity by the fund manager Contact Asset Management
  • It offers a fully franked dividend yield of 6%
  • The company is installing electric vehicle charging stations at its service station network

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).

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.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Energy Shares

A young woman carefully adds a rock to the top of a pile of balanced river rocks.
Share Market News

Here's how the ASX 200 market sectors stacked up last week

Energy and utilities stocks led the way last week with 4%-plus gains.

Read more »

A male oil and gas mechanic wearing a white hardhat walks along a steel platform above a series of gas pipes in a gas plant
Dividend Investing

Should I buy Santos shares for dividend income?

Santos shares have been steadily upping their dividends since 2020.

Read more »

Focused man entrepreneur with glasses working, looking at laptop screen thinking about something intently while sitting in the office.
Energy Shares

Are Santos shares a screaming buy?

Goldman Sachs thinks now could be a good time to buy this energy stock.

Read more »

A young woman lifts her red glasses with one hand as she takes a closer look at news about interest rates rising and one expert's surprising recommendation as to which ASX shares to buy
Energy Shares

What is getting investors excited about this ASX 200 uranium stock today?

There's a good reason why this share is charging higher on Wednesday.

Read more »

Businessman studying a high technology holographic stock market chart.
Energy Shares

Is this stock the 'best placed' of the ASX uranium shares?

This fund manager thinks so.

Read more »

Worker on a laptop at an oil and gas pipeline.
Energy Shares

Why today is a big day for Santos shares

Why is everyone talking about Santos shares today?

Read more »

A man has a surprised and relieved expression on his face. as he raises his hands up to his face in response to the high fluctuations in the Galileo share price today
Energy Shares

This ASX 200 mining stock just reported a 40% earnings jump

Investors appear pleased with this miner's performance during the first quarter.

Read more »

A man sits in deep thought with a pen held to his lips as he ponders his computer screen with a laptop open next to him on his desk in a home office environment.
Energy Shares

Are beaten down Paladin Energy shares a bargain buy?

Bell Potter thinks this beaten down uranium stock could be worth picking up.

Read more »