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Why Is Caltex Down 5.7% Today?

Stuart Lucy

Stuart Lucy is an Investment Specialist at the Australian Stock Report, and has gained exposure to funds management and investment banking throughout his career. He draws on this experience to provide macroeconomic commentary and actionable investment insights to clients. Stuart is responsible for writing reports, is involved in delivering Macrovue webinars and provides general advice to our members on portfolio construction. Stuart currently holds RG146 General and Securities qualifications.

Caltex’s (ASX: CTX) share price was hammered early this morning, trading down 5.7% on the back of a 54% fall in first half profit. The rise in crude oil prices hurt the results, since margins were squeezed when petrol prices paid by end consumers did not increase as fast as crude oil prices.

Caltex Australia Ltd  - Down
Caltex share’s fell this morning on the back of disappointing results (Credit: Downer)

Australian fuel demand declined 2.2% on pcp, which management believes is due to underlying weakness within the Aussie consumer. This weakness, attributed to a global economic slowdown, sluggish wages growth and negative wealth effects from declining property prices, has been a key feature throughout this reporting season. The company is a good proxy for its industry, given all industry participants face similar pricing pressures, highlighting the challenging position that global oil markets are in.

The company has responded with measures to cut costs and ensure better capital discipline. One of these initiatives is to sell 50 sites that management believes will have better uses as something other than a petrol station, which represent nearly 10% of the company’s retail fuel outlets. Overall, Caltex estimates that the cost out program will cut $100m p.a. in costs by 2020, which will position the company to be one of the most efficient operators in the industry if fully realized. Given cost reduction has been a key driver of earnings over the past few years, investors can rely on a management team with a strong track record to reduce costs further and remain competitive.

Caltex is a fuel, infrastructure and retail business, and is one of the largest within the Australian market. The firm targets a payout ratio of 50-70% over the economic cycle and aims to be in the top quartile of comparable businesses by TSR (total shareholder returns). While the company has been successful at cutting costs thus far, shareholders will need to monitor the increasing competitive pressures in the industry to make sure they are comfortable with the business going forward.




This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)

(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).

This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.

ASR has no position in any of the stocks mentioned.

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