Refiner and retail petrol business Caltex Australia Ltd (ASX: CTX) released an updated profit result for its 2018 financial year showing a fall in profit year over year, as many analysts expected.
Who is Caltex?
Caltex Australia is known for the popular fuel and convenience stores. The multi-billion dollar company also operates in the petroleum industry by buying, refining and distributing fuel products throughout Australia. It’s been in the business for more than 100 years!
Recent Woolies Deal
Caltex recently re-signed a fuel supply deal with Woolworths Group Ltd (ASX: WOW).
At the time, it seemed to me that Woolworths definitely got a good deal because as a result of the new terms Woolies would get a $50 million one-off payment from Caltex and it would save $80 million per year in yearly earnings before interest and taxes (click here to learn what EBIT means).
Caltex said the deal provided certainty of supply for its fuels business and would help it with its plans to take control of more service stations and grow the convenience channel.
“The operating model review determined that controlling our core business is the best way to achieve our retail growth objectives,” Caltex said at the time.
2018 Profit Forecast
“2018 was a year in which we established solid foundations for sustainable growth in both our Fuels & Infrastructure and Convenience Retail businesses,” Caltex CEO Julian Segal said in an ASX release today.
Caltex said that among other things, the renewed deal with Woolies and its retail push will enable it to return to sustainable growth going forward.
However, in 2018, Caltex its replacement cost operating profit (RCOP) will likely be between $533 million and $553 million. That’s lower than its result from 2017, which came in at $638 million.
According to Caltex, analysts had pegged the company’s 2018 profit at $552 million, so the updated unaudited figure may not be significantly bad news for shareholders.
“The Convenience Retail team is now well progressed in delivering value from the Woolworths partnership,” Segal said. “The ongoing transition of franchise sites to company operations is on track, with agreements in place that will see Caltex control over 98% of our network by the end of 2020.”
It’s been a tough year for Caltex shareholders, with the company’s share price falling from over $34 to their current price around $27. However, the company has been a consistent dividend payer and compounded profit over a long period of time. Therefore, it could be time to take a close look at Caltex shares.
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