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Caltex shares race higher on solid full year result and share buyback news

Caltex share price
Source: CTX presentation

The market may be sinking lower on Tuesday but the same cannot be said for the Caltex Australia Limited (ASX: CTX) share price.

In afternoon trade the fuel retailer’s shares are up 6% to $29.23 following the release of its full year results.

What happened in FY 2018?

In FY 2018 the company delivered a Replacement Cost Operating Profit (RCOP) net profit after tax of $558 million. While this was a 12% decline on the prior corresponding period, it was ahead of its guidance range of $533 million to $553 million.

This RCOP net profit after tax includes the impact from a $128 million lower refiner margin, $35 million lower earnings from the Woolworths Limited (ASX: WOW) fuel supply re-negotiation, and ~$20 million from the transition of sites to company operations.

Management believes the result “represents a solid underlying operating performance during a critical year of transformation, with the business delivering a return on capital employed of 19%.”

The outperformance of its guidance was driven by the solid performance of its Fuels & Infrastructure and Convenience Retail segments.

Fuels & Infrastructure total earnings before interest and tax (EBIT) came in at $570 million, which was in line with the guidance range of $560 million and $580 million.

Convenience Retail EBIT came in at $307 million, which was above the guidance range of $295 million and $305 million. Management advised that this segment has made excellent progress in the transition of stores to company operations, with a total of 516 stores now operated by the company. This compares to 316 at the beginning of the year.

Another positive which is likely to have pleased the market today is the board’s decision to undertake an off-market buy-back of $260 million worth of shares. This is expected to be completed in the second quarter.

Chairman, Steven Gregg, said: “While attractive growth opportunities exist in the portfolio, Caltex believes the Buy-back will benefit all of our shareholders, given it is expected to improve Caltex’s earnings per share and return on equity”.

In addition to this, a final dividend of 61 cents per share fully franked was declared, bringing its full year dividend to 118 cents per share.

The company’s managing director and CEO, Julian Segal, was pleased with the company’s performance and the buy-back.

He said: “Our 2018 financial results and the ~$260 million Off-market Buy-back announced today demonstrate our progress on transforming our business, our commitment to growth and our continuing focus on delivering returns to shareholders.”

Should you invest?

While Caltex’s performance has been a little mixed over the last few years, I believe its focus on opportunities in the Convenience Retail segment have positioned it well for growth over the coming years.

So with its undemanding valuation and its fully franked 4% dividend yield, I think it could be an attractive option for investors. I would choose it ahead of rival Viva Energy Reit Ltd (ASX: VVR) at this point.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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