Morningstar | Refiner Margin Falls in June but Caltex Maintains 1H 2018 Earnings Guidance; No Change to FVE
We retain our AUD 33.50 fair value estimate for no-moat Caltex, but marginally decrease our 2018 EPS forecasts by 3% to AUD 2.43. June’s USD 8.63/barrel Caltex refiner margin came in lower than the USD 12.00 Caltex had assumed to derive its first-half 2018 profit guidance. Still, while the firm says first-half Lytton refinery EBIT will be below the AUD 110 million guidance provided in early June--we now forecast AUD 103 million--EBIT guidance for the group overall remains within the prior AUD 440 million-AUD 470 million range. Further, we retain our first-half group underlying EBIT and NPAT forecasts of AUD 458 million and AUD 305 million, respectively, both still within the midrange of guidance.Rather, the modest decline in our full-year EPS forecast stems from a single correction Caltex made to its first-pass guidance. The company amended the total first-half ANZ fuel sales forecast upward by 8% to 8.4 billion litres from 7.8 billion litres, while all other guidance held. The result was that the implied first-half 2018 AUD 7.1 cents per litre fuel margin was overstated; this is now reduced to AUD 6.6 cents, closer to our unchanged AUD 6.6 cent nominal midcycle margin assumption from 2022. The fade needed to get to our nominal midcycle margin forecast is therefore greatly reduced. Margin compression from increasing competition, not least from Viva Energy, looks to have occurred faster than previously credited.
Our fair value estimate equates to a 2022 enterprise value/EBITDA of 8.3, P/E of 15, and dividend yield of 2.9%, all discounted at the weighted average cost of capital. In nominal terms, the P/E and yield would be 10 and 4.4%, respectively. Supply and marketing comprises 70% of our fair value estimate, and refining the 30% balance. We still assume EBITDA growth in the supply and marketing segment has essentially plateaued at a 1.7% CAGR, in contrast to hectic double-digit growth rates to 2015 from Caltex’s first-mover advantage into premium diesel fuel.
Caltex Australia is engaged in the purchase, refining, distribution and marketing of petroleum products and the operation of convenience stores throughout Australia. Co. has two segments: Supply and Marketing, which is an integrated transport fuel supply chain which sources refined products on the international market and sells Caltex fuels, lubricants, specialty products and convenience store goods through a network of Caltex, Caltex Woolworths and Ampol branded service stations, as well as through company owned and non-equity resellers and direct sales to corporate customers; and Lytton, which refines crude oil into petrol, diesel, jet fuel and products such as liquid petroleum gas.
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