Relief from the lack of bad news isn't enough to keep Caltex Australia Limited (ASX: CTX) in investors' good books today.
While shares in the refiner and fuel distributor jumped 1.7% in early trade after it posted a 45% rise in first half underlying net profit, Caltex quickly reversed and fell 1.3% to $32.93 in sympathy with the 1.9% crash in the S&P/ASX 200 Energy Index.
Energy is the worst-performing sector today due to weak crude prices that sparked a 3% crash in Santo Ltd's (ASX: STO) share price and a 2.1% fall in Oil Search Limited's (ASX: OSH) stock to $6.69.
Caltex's decline seems mild in comparison and it's not so much the profit jump that gave the stock an early fleeting boost as the result was largely anticipated, but relief that Caltex didn't issue a profit warning.
There has been speculation that the company was preparing to lower profit expectations after it failed to issue an earnings guidance in the last two weeks of June as it has for the last five years.
Caltex reported a replacement cost operating profit (RCOP) of $251 million on an after tax basis for the six months to end June, compared with $173 million for the same time last year.
RCOP smooths out fluctuating currency and oil prices, an important consideration given that Caltex holds crude oil inventories for up to 60 days.
The result was largely bolstered by its Lytton refining business, which delivered a 285% surge in earnings before interest and tax (EBIT) in the first half of 2015 to $154 million.
The refinery benefited from strong production in the first four months of the year as refining margins expanded 71% to $US15.71 a barrel, although a two-month maintenance shutdown crimped total output for the first half.
However, its supply and marketing division EBIT dipped to $263 million from $276 million due to lower volumes of transported fuel and adverse currency and fuel price movements.
This business also continues to face strong competitive pressure, although it's heartening to note that the business might be stabilising following Caltex's restructure from a refining company to a fully integrated transport and supply company.
If you strip out the impact of the volatile Australian dollar and crude oil price, this division would have generated an EBIT of $294 million.
The half-year result puts Caltex on track to slightly exceed consensus full year net RCOP expectations of $553 million (that's reported by Reuters) by around 3%.
That's no big deal and it probably won't win over any sceptics that think the stock is fully valued after its more than 50% rally over the past year, but the stock trades at a discount to global peers and I don't think that's justified.
Investors should use any weakness in the share price as a buying opportunity.
