Caltex has undergone considerable structural change in recent years, with the business shifting from being a capital-intensive refiner, toward a more capital-light operation, focused on fuel retail and marketing, together with a significant operation in fuel distribution.

The fuel distribution network supplies a range of fuels (diesel, petrol and specialist products), servicing Caltex’s own retail network, providing wholesale fuel to third parties and is also a material supplier of fuel to large-scale commercial customers, such as miners.

Caltex shares have been weaker following the proposed sale of Woolworths’ fuel retailing business to BP, which will likely see Caltex lose most of its sales to those petrol stations. Although this was a negative for earnings, the decline in the share price created an opportunity to invest. We expect Caltex to strive to replace the lost profits and note it has made two small acquisitions recently which assist in partly filling the earnings gap.

Caltex is well capitalised, providing potential for further acquisitions, further investment in Caltex retail locations or alternatively capital management (there is large pool of franking credits). (VIEW LINK)


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