Leading fuel supplier Caltex Australia (ASX: CTX) has released its interim results for the six months to June showing a 3% fall in revenue to $11.5 billion and a 13% fall in profit to $171 million, on a replacement cost basis. (The replacement cost basis excludes the impact of the rise or fall in oil prices and presents a clearer picture of the company’s underlying business performance.) The company held the interim dividend steady at 17 cents per share.
Managing Director Mr Julian Segal in commenting on the results highlighted that the “balance sheet remains strong and, despite an increasingly competitive environment, the outlook for our business continues to be positive. We are well progressed in restructuring our supply chain, with the conversion of our Kurnell refinery to a leading import terminal by the end of 2014 on schedule. We also continue to invest to support growth in our Marketing operations.”
Indeed it is the resilience of the Marketing and Distribution division’s earnings that have helped Caltex earn the bulk of its profits. Earnings before interest and tax (EBIT) from marketing and distribution were $365 million, in line with the previous year. Whereas the Refining and Supply division continues to underperform, returning an EBIT loss of $43 million down from a $2 million profit. The division was affected by the sudden drop in the exchange rate and an unplanned outage at the Lytton refinery that affected volumes and supply into the Sydney market.
Sales volumes dipped from 7.78 billion litres to 7.76 billion litres compared with the previous corresponding period however the marketing margin on transport fuel sales (which includes jet fuel) rose. Because Woolworths (ASX: WES) runs jointly branded service stations with Caltex while Coles, owned by Wesfarmers (ASX: WES), operates under an agreement with multinational Shell, Caltex’s results provide some insights for investors in the two supermarket giants as well.
Caltex reported that average weekly shop sales (non-fuel items) increased by 0.44% to $36,800 up from $36,600 in the previous year which suggests that growth in store sales is lacklustre and perhaps the discounting of essential items such as milk is failing to invigorate fuel store sales.
Caltex supplies around 1 in every 3 litres of the gasoline, diesel and jet fuel consumed in Australia via a national distribution network of refineries, terminals, pipelines and depots. With annualised earnings per share (on a replacement cost basis) of 126.6 cps and a share price of $19 the stock currently trades on a price-to-earnings ratio of 15 times. The company has a sound balance sheet and an enviable market position however with the growth rate of fuel consumption roughly in line with GDP growth it would appear that the current pricing of Caltex stock is reasonable.
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