Shares in Caltex Australia Limited [ASX:CTX] have lifted 6.37% after the release of the company’s end of FY18 results — and the announcement of a dramatic buyback plan.
At time of writing, Caltex is valued at $29.37 a share, up $1.76 from yesterday.
Caltex is one of the largest and longest running fuel networks, with fuel and convenience retail stores located throughout Australia.
Significant progress despite annual profits falling
Caltex’s end of FY18 results just managed to pass the initial guidance range of $530–550 million to $560 million. Overall, profit fell 10% from their 2017 result of $619 million.
Even with the fall, both the Chairman and the Chief Executive of Caltex are buoyed by the turn in fortune being felt by the company. The decision to focus on fuel/infrastructure and retail/convenience as two separate cultures has contributed to ‘significant growth options’ within the company.
Chief exec Julian Segal argued that a lot of progress was made in 2018 by ‘executing the fuels and infrastructure and retail and convenience retail strategies, setting up the company for long-term success.’
Caltex announced early last year their plans to scrap all petrol station franchises by 2020 (despite the 1.5% profit increase) soon after a series of wage-theft scandals. They increased the number of fully-owned and operated Caltex stores to 352 by February 2018 (with around 433 still franchised out).
The latest plan will involve a $260 million off-market buyback of shares. They will also look to return over 400 franchise stores to company ownership.
Company chairman Steve Gregg was positive about the transition:
‘While attractive growth opportunities exist in the portfolio, Caltex believes the Buy-back will benefit all of our shareholders, given it is expected to improve Caltex’s earnings per share and return on equity.’
Caltex Australia’s ‘Protect and Grow’ plan
Caltex have emphasised the importance of their five-year plan in transforming the company from ‘a refiner-marketer, to a market-leading integrated transport fuels business in Australia.’
The long-term success which Segal speaks about has not only been influenced by the transformation of retail operations at home (described in their report as operation ‘Protect and Grow’), but also by looking at fuel supply and retail opportunities overseas.
The next five years will likely see Caltex attempt to re-establish the brand nationally while also expanding further into the Asian market (a project aptly named ‘Extend’).
And now that the supply-partnership with Woolworths has been extended, the next part of the strategy for investors will be waiting to see a successful pay-off as Caltex splits their business further apart.
For Money Morning
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