Good long-term news for shareholders in Caltex yesterday, while some short-term pain suggested (and possible negative impact in earnings for the December half year) in an update released at its 2018 19 investor day.
The good was the commitment to lift its dividend payout to shareholders because it has completed the transformation of its business to produce higher and more predictable cash flows.
The hint of bad was the company highlighting a series of negative factors affecting earnings this half.
Caltex shares lost 1.6% to $27.40 yesterday on the weaker short-term news. The shares hit a 12 month low of $5.30 in trading. The shares had been down more than 4% at one stage.
In a presentation to be made to investors on Tuesday, Caltex said it will in future payout between 50% 70% of its benchmark net profit in dividends, subject to future capital needs and the business outlook. The previous payout ratio was 40% to 60%.
“With transformation well advanced, Caltex now has the capacity to sustainably pay higher dividends, whilst retaining sufficient capital headroom to support growth aspirations in both Fuels & Infrastructure and Convenience Retail,” it said in the presentation.
“Caltex now has greater certainty over Retail formats, roll-out timing, and store costs.”
Caltex is in the process of ending its service station franchising business by 2020after running into a wages underpayment scandal for some employees. The scandal and reaction saw the company change tack very quickly to end the franchising system and bring the sites and convenience stores back under its ownership and control.
The negatives saw the company warn investors yesterday that its third-quarter (September) retail fuel volumes had been “impacted by high crude (oil) price and low AUD (Australian dollar). the company estimated this would cut September quarter retail earnings by around $20 million relative to the first half “run rate”.
As well there was an unplanned outage of a (crude) reformer (a piece of equipment in the cracking process to make petrol) at its Lytton refinery in October. “Impacts to gasoline and diesel production, impacting EBIT (Earnings Before Interest and Tax) by $15 to $20 million.
The third quarter crude refining margin was $US11.53 a barrel (up from $US9.99 in the June quarter( but down sharply from the $US14.60 a barrel for the 3rd quarter of 2017. Caltex said yesterday its 4th quarter refining margin is “expected to be impacted by soft gasoline margins offset by lower FX (foreign exchange).
On top of this, the company has seen a short-term build-up of working capital to handle the impact of rising crude prices and product prices, combined with the impact of lower production because of the problems at the Lytton refinery.
That all sounds like Caltex would be working towards a weak final half of its financial year which ends December 31. But crude prices have softened noticeably in October down 10% or more in some areas. If that persists, it could help with prices rises for petrol and other products lagging lower crude costs.
