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Caltex share price soars higher on strong margins in ASX update

The Caltex Australia Ltd  (ASX: CTX) share price has climbed 2.24% higher this morning after the company provided an update on its Caltex Refiner Margin (CRM).

What did Caltex report to the market?

Caltex provided the update on CRM sales from production for the March 2019 quarter in the context of its enhanced disclosure obligations during Caltex’s recently announced off-market buyback.

The company’s CRM came in at US$8.67 per barrel (bbl) in March 2019, up from US$7.34 per barrel.

On a YTD basis, Q1 2019 cost of US$7.53 per barrel was 22.3% lower on prior corresponding period (pcp), while CRM sales from production was down by 5.8% at 1,487 million litres.

The CRM is a measure of the cost to the company of importing crude oil versus importing a standard basket of goods, such as the ones used to calculate the consumer price index or CPI.

Caltex also reaffirmed its 2019 production guidance of around 5.8 billion litres in this morning’s announcement.

Is the Caltex share price in the buy zone?

The Caltex share price is up 8% so far this year but its performance has paled in comparison to the likes of Beach Energy Ltd  (ASX: BPT) or Santos Ltd  (ASX: STO).

A supply shortage in domestic gas markets has kept pricing high for the oil and gas giants in Australia while oil prices last week reached a 5-month high on conflict in Libya and OPEC-led supply cuts.

Personally, I think Caltex isn’t the best growth option in the Energy sector and while it does offer a 4.25% p.a. dividend yield, the likes of Beach still looks like a better buy.

There is a case for a relative value play, as Caltex’s 12.9x P/E ratio is well below that of both Santos (16.6x) and Beach (23.0x).

While Caltex does seem cheap after falling 12.4% in the last 12 months, I’d be waiting until its FY19 results before investing in the stock.

For those looking for a more high-risk, high-reward growth play, this top-rated stock in a $22 billion (and growing) industry could be the perfect portfolio fit.

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