The share price of Caltex Australia Limited (ASX: CTX) crashed this morning after management posted its first-half result but it isn't so much the profit numbers that have disappointed investors in my view.
The stock tumbled 4.4% to $31.83 this morning – making it the third-worst performer on the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index after Speedcast International Ltd (ASX: SDA) and Afterpay Touch Group Ltd (ASX: APT).
It is the lack of near-term earnings catalysts and a dividend cut that are weighing most on the stock after management ruled out a sale and leaseback of its Convenience Retail properties or a spin-off in the business into a separately listed entity – a strategy that is gaining increasing popularity with investors with the likes of Brambles Limited (ASX: BXB) and Wesfarmers Ltd (ASX: WES) among some recent examples.
Caltex will instead look at partnership opportunities to extract greater value from its retail outlets in its petrol stations that is valued at $2 billion.
Impatient shareholders aren't so impressed with the slow and steady approach with management looking to sell between 15% and 25% of the properties to a strategic partner that can improve the performance of this division.
"This will enable Caltex to benefit from market value and development gains, and allows evaluation of the benefits of the partnership structure, with a view to further monetisation where value can be demonstrated," said the company.
In other words, it might be a while before shareholders can reap any rewards from the move, which comes at a time of low growth for Caltex.
The fuel distributor reported a 1% increase in its interim net profit using Replacement Cost Profit (RCOP) to $296 million. RCOP is the way most analysts would measure Caltex's performance as it strips out any potential oil inventory gains and losses from the fluctuating crude price.
The RCOP figure is also negatively impacted by lower margins and the costs of buying back franchise stores to turn them into company owned stores.
What's also bad news is that its Fuel and Infrastructure division (which contributes the bulk of group earnings) missed its earnings guidance. This division posted a first-half earnings before interest and tax (EBIT) of $314 million versus management's forecasts of $315 million to $335 million.
Its interim dividend was also lowered by 3 cents to 57 cents and that's probably in part to the big jump in corporate costs.
Corporate costs rose to $31 million compared to $21 million at the same time last year and the $23 million that management was guiding for. Acquisition transaction costs and expenses relating to major projects like its partnership with Woolworths Group Ltd (ASX: WOW) have led to the blowout.
Investors will be wondering why management hadn't managed market expectations better given that none of these were unexpected.
It's hard to see Caltex outperforming in the near term in light of today's results – barring a value accretive acquisition. There's better value elsewhere.
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