Caltex Australia Limited (ASX: CTX) is down 12% in six months. The price has remained low despite the company announcing last week that 1Q18 net profit after tax was $154 million, which was 6% ahead of UBS's forecast of $145 million. Lower operating costs helped offset the impact of lower refinery margins.
Since CY17 result released earlier this year, the share price of Caltex is down 16% at the time of writing to $30.60. According to UBS the current price is valuing the business at a forward price-earnings-ratio (PER) of 12.7x, a 16% discount to the energy industry's median PER of 15x, despite only slightly lower growth forecast. The company plans to delve deeper into retail with costs expected of $100 – $120 million over the next three years. The retail strategy will be put in place to offset the increased risk from the potential of losing the agreement to supply fuel to Woolworths Group Ltd (ASX: WOW). Woolworths could either entend its agreement with Caltex if both parties agree, or look at other offers that appease the Australian Competition and Consumer Commission (which previously blocked Woolworths selling the business to BP of $1.8 billion) leading to lost earnings of around $150 million to Caltex. UBS believes that the positives offset this risk such as recent acquisitions, cost savings and higher sale from the rollout of retail.
UBS has reaffirmed the company as a buy, with 6% three year earings per share CAGR and 4% dividend yield.
In the same sector Woodside Petroleum Limited (ASX: WPL) is trading on a forward PER of 19x, which is a premium to the median PER of the sector of 15x. Woodside's share price has rallied on the back of the stronger oil price and is paying a dividend yield of 4.5% per annum, fully franked.
