Trade Fluctuations | Caltex Update

10 October 2019

Global markets​ rebounded overnight, as shares on Wall Street rose for the first time in three sessions with technology stocks providing a boost, as a report that China was open to a partial trade deal soothed investor nerves ahead of high-level trade talks. Separately, the Financial Times said Beijing was offering to increase its annual purchases of US agricultural products. ​Markets are fluctuating on trade headlines, and it will be very interesting to see what develops from US-China trade talks.
 

Stock in Focus: Caltex (CTX:ASX)

CTX shares have continued to slide, after delivering a disappointing result for the first half of the 2019 financial year despite remaining within its previously announced guidance. 

Net profit after tax (under replacement cost basis) of $135m, was significantly lower than the previous year ($296m). This was largely driven by weaker refining margins and lower production volumes as earnings (EBIT) from the Lytton refinery came in at only $1m, down from $105m last year. While Convenience and retail earnings (EBIT) halved to $85m, due to tighter retail fuel margins and lower sales volumes given a slowing Australian economy. 

Caltex remain confident they can enhance the retail offering by rejuvenating stores and grow earnings. As a result, Caltex cut is its interim dividend by -44% from last year down to 32 cents per share which would has not been well received by the market. The retail fuel market continues to be a very challenging industry, and longer term we believe with the popularity of fuel efficient (hybrid vehicles) and uptake of affordable electric vehicles there will be unavoidable headwinds and uncertainties for the industry, as demand for fossil fuels head downwards creating further margin and earnings pressure. Given the share price movement over the last two-years we are glad we removed our BUY rating early.​
 
We currently have a HOLD rating on ​CTX.

 

  
Australia & New Zealand Market Movers

​​The Australian market was lower yesterday (ASX 200 Index ​-​0.​71​%) ​as trade tensions escalated. ​Flight Centre shares dropped -11% after it warned that fiscal first-half underlying profit would be lower than a year ago in a "relatively challenging" trading environment. The travel company explained that trading deteriorated in Australia late last year after a comparatively strong start to the fiscal year and has remained subdued since then. Fiscal 2020 profit is likely to be heavily weighted towards the second half, it added.

 
The New Zealand market​ sold off on Wednesday (NZX 50 Index ​-​0.​78​%) ​as ​ fears over the US-China trade war re-emerged and weighed on investor confidence across the region. Chorus announced former NBN and Telstra executive JB Rousselot will take over as chief executive next month. The company also unveiled strong connection growth for the September quarter.​ ​Skellerup Holdings posted the day's biggest gain,​, as the rubber goods manufacturer told shareholders at today's annual meeting that it was on track to achieve more earnings growth in the current financial year.

 

3 Things Markets Will be Watching this Week

  1. ​​​​Trade War related news-flow ​will remain a feature with negotiations between the US & China set to restart.​
  2. ​Minutes from the last US central bank ​meeting will be released, as well as a speech by chairman Jerome Powell.
  3. Australian business conditions & confidence figures are released on Tuesday.

 

Have a Great Day,
 

Team

Global markets​ rebounded overnight, as shares on Wall Street rose for the first time in three sessions with technology stocks providing a boost, as a report that China was open to a partial trade deal soothed investor nerves ahead of high-level trade tal

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