Yesterday's response to the update did surprise me a bit, but I suppose it shouldn't have because there is always likely to be some sticker-shock on the day of a perceived "downgrade" due to certain market participants shooting first, and asking questions later.
Often the market is right in doing so, but in this case, I thought the market was being lazy in selling because it saw "downgrade".
While the bottom-line result was indeed a nominal downgrade, in terms of composition I saw the opposite, a qualitative upgrade because the growth parts (Z Energy and particularly Convenience Retail) did what they needed to do, i.e., grow organically, and the downgrade emanated exclusively from the bombed-out refinery margin and the impact of Cyclone Alfred which turned Lytton into loss-making (to the point where further downside is limited because Lytton now qualifies for state support under the Fuel Security Services Payment program).
So, the parts of the business that need to be humming, are.
And the parts of the business that are struggling, have further downside quarantined.
On the reasonable assumptions that Convenience Retail will keep growing and that Fuel and Infrastructure will see a cyclical rebound, and that Refining has no further downside and will - at some point over the next few years - see a recovery in global refinery margins, it is hard to see the stock not being meaningfully higher in 12-to 18 months.
As has been said before, not the world's most beautiful business, but also not total mullock ... probably halfway between the two (although it is currently being priced like it is the latter)
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ALD Price at posting:
$21.83 Sentiment: None Disclosure: Held
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