What: Despite having already gained 34.8% over the past 12 months, Caltex Australia Limited's (ASX: CTX) shares are making further gains today with the price rising over 5% after the release of an interim profit result towards the top end of management's guidance.
So what: The result confirms that the company's strategic move to convert the Kurnell refinery into an import terminal and increasingly focus on marketing and distribution of fuel appears to be gaining traction.
For the half year, operating profit after tax (on a replacement cost basis) increased by $2 million to $173 million. The board also declared a fully franked interim dividend of 20 cents per share (cps) which was a 3 cps increase on the prior comparable period.
Now what: The marketing and distribution division increased earnings before interest and tax to $393 million from $365 million in the prior half which equates to growth of 7.7% which is a good sign. Caltex is also implementing a major cost review which will involve the loss of jobs but should deliver around $100 million in annualised cost savings going forward.
Today's profit results would appear to vindicate the market's enthusiasm for the stock. One fund manager who has benefited from backing Caltex has been Investors Mutual – part-owned by fund incubator Treasury Group (ASX: TRG). However, the strong share price performance is likely to decrease the appeal of investing at current prices. Annualising the interim result suggests the stock is trading on a FY 2014 price-to-earnings ratio of 21.2 which could limit the future upside potential for the share price.
