If you ever wanted to understand how big a modernised economy really is, then wrap your head around this figure:
7.72 billion Litres or, 171,555,555 tanks of petrol (45L tank).
That's how much petrol Caltex Australia Limited (ASX: CTX) sold in Australia in the first half of 2015. The petrol refiner and retailer saw a significant fall in production due to the closure of Sydney's Kurnell refinery, but otherwise Caltex turned in a great set of results:
- Profit after interest and tax rose 61% to $280m
- Excluding significant items*, profit after interest and tax was up 45% to $251m
- Earnings per share of 92.9 cents, excluding significant items
- Interim dividend of 47 cents per share, up from 20cps in 2014
- Caltex Refiner Margin ('CRM'**) of 12.82 cents, up from 6.32 cents in 2015
- Gearing (net debt divided by net debt + equity) of 21%
- $19m cash at bank
*excluding one-off business expenses, including cash and non-cash items
**How much profit Caltex makes per litre of fuel sold
So What?
Caltex experienced a very strong six months so far this year, with the weaker Australian dollar giving its CRM (profit margin) a significant boost – effectively doubling it. So it's no surprise that Caltex posted such a significant rise in its profits, despite the fact that volume for petrol and diesel declined by 2.2% and 5.2% respectively compared to the first half of 2014.
The business thus looks to be set for a very strong full-year performance, although it is worth pointing out that Caltex management may not be so confident that high margins and profits can continue in the future:
"Caltex's policy has been not to hedge refiner margins. However, given the unusual strength in regional refiner margins currently, Caltex has hedged a portion of its third quarter 2015 refiner margins in order to support near term earnings."
While it has no impact on today's report, I feel this is a sign that the good times won't necessarily be as good in the future.
Now What?
Over the longer term I expect the general downward trend in fuel volumes to continue as a result of more fuel-efficient cars, better public transport and the use of alternative fuel sources. Investors will note that petrol volumes still declined despite super-low prices, debunking the argument that weaker prices increase demand (though the two are not inextricably linked).
This could put some pressure on Caltex's margins as its costs are spread among a smaller base. While 2015 is likely to be a sound year for Caltex I feel its outlook for growth is fairly limited and doesn't justify the price tag the market has appended to it. For this reason I will not take advantage of today's price weakness to buy shares.
