The Caltex Australia Limited (ASX: CTX) share price has managed to defy the market today and climb higher.
In early afternoon trade the fuel retailer's shares are up marginally to $33.51 following the release of its half-year results.
Here are key takeaways from the release:
- First-half revenue from ordinary activities increased 20% to $10,160 million.
- Profit after tax on a historical cost basis (including significant items) fell 17% to $265 million.
- Profit after tax on a replacement cost (RCOP) basis (excluding significant items) increased 21% to $307 million.
- RCOP earnings per share of 117.7 cents.
- Interim fully franked dividend of 60 cents per share.
Overall I thought this was a solid result from Caltex and had the market not sunk lower today I think its shares would have climbed much higher.
Like many refining marketing groups, Caltex has a preference for reporting its profit on a replacement cost basis. This is because by using RCOP it removes the impact of fluctuations in the US$ price of crude and foreign exchange on cost of sales.
Such impacts constitute a major external influence on company profits, both positively and negatively.
To accomplish this RCOP calculates the cost of goods sold on the basis of theoretical new purchases instead of actual costs from inventory.
So while profit after tax on a historical cost basis fell sharply, it really is the RCOP profit result that investors should be paying attention to. Which in my opinion was an exceptionally strong result.
This was driven largely by sales volume growth in its premium products and jet fuel. This offset weaker volumes in its base unleaded petrol and a decline in non-fuel income which occurred due to the transition of around 80 franchised sites to company operations.
Should you invest?
Based on today's interim result, Caltex's shares are trading at a little over 14x annualised RCOP earnings and provide a trailing fully franked 3.3% dividend.
Whilst I wouldn't go so far as to say they are a bargain buy, I think this does make Caltex reasonably good value for investors.
However, a lot will depend on demand for premium fuels moving forward. There are concerns floating around that demand for premium fuels has peaked. If this proves to be the case then Caltex could struggle to grow at a rate that satisfies the market.
In light of this, I would class Caltex as a hold at the current share price. Investors may see more value elsewhere in the energy sector with shares such as Santos Ltd (ASX: STO) and Woodside Petroleum Limited (ASX: WPL).
