Caltex may sell stake in petrol stations, as profit jumps

DAVID WINNING and PERRY WILLIAMS
AUGUST 28, 2018
DOW JONES
Transport fuel supplier Caltex Australia said its first-half net profit rose by 45 per cent, and it’s considering the sale of a significant stake in some freehold gas stations.
Caltex (CTX), which supplies a range of fuels and lubricants and operates a chain of petrol stations across Australia, reported a net profit of $383 million in the six months through June, up from $265 million a year earlier – just short of Caltex’s June guidance of $385m to $405m. The result included inventory gains totalling $87 million after tax.
Measured on a replacement-cost basis, Caltex said earnings totalled $296 million compared to $294 million the year before. That was at the lower end of recent guidance of $295m to $315m.
Caltex benefited from strong growth in earnings from fuels and infrastructure, despite lower margins at its Lytton refinery. Still, retail margins narrowed in its retail division, mainly due to a lag between rising crude oil and product prices.
The result was widely expected after Caltex released unaudited first-half profit guidance in mid June. Directors of the company declared an interim dividend of 57 cents per security, down from 60 cents a year ago.
In a surprise, however, Caltex said a review of its gas stations had concluded that there wasn’t a financially compelling reason to pursue a sale-and-leaseback strategy to unlock value. That’s because “sales proceeds are largely offset by the assumption of the related lease liabilities,” the company said.
Instead, Caltex said it is in talks with third parties on an arrangement that would marry its assets with another party’s ownership, management and development skills.
“These discussions include consideration of the sale of a material part (15-25 per cent) of the existing freehold site portfolio — currently estimated to have a total value of approximately $2 billion — with Caltex retaining between 25-50 per cent equity interest,” Caltex said.
Such a deal would enable Caltex to benefit from any increase in the market value of the petrol stations and pave the way for other potential transactions later, management said.
However, Caltex said a separate review of its infrastructure assets had concluded that it wasn’t worth pursuing any deals, despite strong interest from investors.
Australia’s fuel market has undergone rapid change in recent years as several operators sold or closed refineries, in some cases converting them to import terminals. At the same time, petrol stations traded hands with companies including Exxon Mobil Corp exiting the sector and investors such as Swiss commodities trader Vitol building up a position.
One competitive threat to Caltex’s business disappeared this year when BP walked away from a $US1.3 billion acquisition of Woolworths’ service station network after it faced opposition from Australian regulators. The deal’s collapse enabled Caltex to ink a new strategic alliance and 15-year wholesale fuel supply agreement with Woolworths.
Still, other risks remain. Investors are watching closely to see if the recent initial public offering of Viva Energy Australia leads to any shift in strategy. Viva Energy, which continues to count Vitol as a major shareholders, supplies around 25 per cent of the country’s liquid fuel needs and is a major supplier of the bitumen that paves roads and chemicals used in mining, paint and adhesives.