Caltex (CTX) is Australia’s leading transport fuel supplier and convenience retailer and the only integrated oil refining and marketing company listed on the ASX.
CTX operates two major refineries, at Kurnell in Sydney, and Lytton in Brisbane. CTX also operates a convenience store network in association with service station sites.
Caltex supplies about one-third of transport fuel in Australia, and is a net importer of petroleum products.
The refiner’s business value chain incorporates supply, refining, logistics and marketing.
Though CTX has suffered in recent history over refiner margin pressure it has been one of the hot stocks since July last year.
The company has turned things around and recently reported FY earnings which beat analyst expectations.
CTX last month reported an FY10 net operating profit of $302 million, up 49% from a year earlier and beating analyst estimates.
CTX attributed the result to higher regional refiner margins, surging fuel sales and improved refinery reliability. However, the stronger AUD eroded $94 million from CTX’s refiner margin.
Record sales for transport fuels were achieved, helping to bolster the result.
The group was bullish about the medium-long term outlook, citing continued recovery in US dollar refiner margins due to the expected decline in excess fuel supply in the Asia Pacific region.
CTX declared a final dividend of 30 cents, up from 25 cent in the prior year.
Production improves in 2H
In the first half of 2010, CTX’s production struggled hurt by reliability issues. Higher planned maintenance was experienced.
However, the second half showed a marked improvement helped by record mechanical availability.
Production in the second half improved to near record levels of 5.5 billion litres with refinery utilisation in excess of 78%.
For the full year, production of petrol, diesel and jet fuel was 9.8 billion litres. This was slightly weaker than the previous year.
CTX refiner margins averaged US$8.39 per barrel in 2010 compared to US$5.95 per barrel in 2009.
Refining profitability is often impacted by the Aussie dollar. This saw CTX introduce a foreign exchange hedging program from 1 July 2010.
The relative strength of the Aussie dollar to the US dollar will reduce the translated Aussie dollar CTX refiner margin.
However, a rising Aussie dollar in 2H10 offset losses in crude payables from 1H10.
The Catalyst program is expected to deliver a significant improvement in business dynamics.
The 2011 outlook for CTX remains positive despite the recent spike in oil prices.
When CTX reported its FY earnings, it anticipated that the excess supply in the Asia Pacific region should slowly decline.
The Japan crisis has now thrown a spanner in the works as Caltex is set to benefit after Japan shut down 31% of its refining capacity following the devastating earthquake and tsunami.
This will help ease a regional gasoline supply overhang, pushing up margins for refiners.
Exposure to the mining, agriculture and transport industries in Australia is expected to give CTX significant upside as the global economy improves so it will be one of the stocks to watch in coming months.
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