Caltex Share Price Surges 2% on Woolworths Deal News

Caltex Australia Limited [ASX:CTX], an energy corporation, is riding a market wave today. The company stock is up on the back of a Woolie’s deal.

Until a few years ago, Caltex was a branded-version of Chevron Corporation [NYSE:CVX], who maintained 50% ownership. Chevron sold their portion in May 2015 and Caltex has since been entirely owned by Australian shareholders. The company’s main operations include petrol stations and convenience stores.

As of writing, CTX is up just over 4% by midday.

Why did this happen to Caltex’s shares?

A newly penned agreement with Woolworths almost certainly caused the jump in CTX. The contract will see Woolworth’s four-cents-a-litre discount be extended to 104 existing and 125 new Caltex operations. It is a 15-year whole fuel supply agreement.

Although this deal looks especially sweet for Woolworths, with an $80 million per year benefit, another $50 million one-time payment from Caltex and greater convenience sales — Caltex’s long-term position is definitely better than if BP had won Woolies’ petrol business.

And Woolworths customers can now get their discounts and rewards at Caltex fuel points! Yay!

Also boosting their stock is Australian competition regulators’ refusal to allow Woolworths to spin-off its petrol business to BP. Caltex was in danger of losing their fuel supply contract…

What’s next for Caltex?

Despite recent winnings (BP’s failed bid, the new contract), Caltex needs to watch out over the long term.

Even though Woolworths entered into the agreement, they say they still plan to offer an IPO or sell their petrol business — which would affect who Caltex works with.

While we wait to see what Woolies decides with their petrol interests, they and Caltex are planning a convenience offering under the Metro brand. The plan is to have 250 in six years, and 50 in the next two. The food convenience stores will be run by Caltex…

At the moment, all is looking good for Caltex. Check back here to see if anything changes…


Ryan Clarkson-Ledward,
For Money Morning

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