Caltex's (ASX: CTX) decision to separate its retail and property assets would make sense in "liberating" further balance sheet value, says Morningstar.

"It would liberate some value that's on the balance sheet" and bring its partnership with Woolworths fuel in line with that of Coles and its fuel partner, Viva Energy (ASX: VEA), according to Morningstar senior equity analyst Mark Taylor.

The restructure was announced alongside its reporting of $296 million net profit for the first half of fiscal 2018 – just 1 per cent up on the same period last year and within the lower end of its guidance for between $295 million and $315 million.

The result was largely in line with Taylor's forecast of $305 million in net profit.

Caltex Convenience Retail, including fuel and shop sales, contributed $205 million in earnings before interest, tax, depreciation and amortisation during the half – about one-third of the group's total.

This was down 10 per cent from $228 million in the first half 2017, which Caltex attributes to the impact of rising crude prices on retail fuel margins, and ongoing transition of franchise sites.

Fuels and Infrastructure EBITDA of $386 million – including $250 million from its Lytton refinery – was up 10 per cent from $350 million in the first half of fiscal 2017.

Regarded as a no-moat company by Morningstar, about 70 per cent of its fair value estimate is predicated on supply and marketing – including its service station operations – and 30 per cent on refining.

Spin-off structure still undecided

While still in very early stages, as the fuels refiner and retailer weighs various options, it would initially include selling up to $500 million of the existing property portfolio to "leading domestic and Asian-based real estate investors." Caltex would retain between 20 per cent and 50 per cent of any partnership.

fuel retail caltex

Caltex announced initial plans to separate its retail and property assets

Caltex and Woolworths extended their agreement for another 15 years last month, after the Australian Competition & Consumer Commission vetoed BP's attempted acquisition of the Woolworths fuel retail business.

Following a now completed asset review, Caltex management is considering various separation arrangements. These include a public or private real estate investment trust, or individual sale and leasebacks of fuel station sites and associated businesses.

"There is value upside from Caltex more actively managing its property assets, including building in-house capability and forming an external partnership with a sophisticated, active real estate player," says management.

Its share price was trading at $31.04 at midday, slightly below Morningstar's $33.50 fair value as at 31 July.

 

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Glenn Freeman is senior editor, Morningstar Australia

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