Caltex Australia could lose 5 per cent to 10 per cent of annual earnings if BP or another industry player were to buy Woolworths’ petrol business.

That’s the view of analysts on Wednesday morning, who were quick to run the numbers after Caltex confessed it could lose its 3.5 billion litres per year contract should the Woolworths unit change hands.

Credit Suisse analysts reckon Caltex would make about 2¢ a litre on the 3.5 billion litres sold through the Woolworths channel each year.

Add in the loss of some “fixed coss leverage” and Caltex’s earnings could be $90 million a year worse off, the analysts said.

Macquarie research analysts run the numbers Woolworths’ petrol, and what it could be worth for Caltex Australia.

“This is ~8% of group EBIT and ~9% of NPAT in 2018 (unlikely BP deal could pass ACCC etc prior),” Credit Suisse told clients.

Citi analysts reckon it would be closer to 5 per cent of earnings, however it would not likely kick in until the 2018 calendar year given approvals around any change of control deal.

“In the event that WOW’s fuels business was sold to someone else (not CTX), triggering a cancellation of the wholesale agreement, we expect an extended ACCC process would allow CTX to still supply the contract until 2H17,” Citi analysts told clients.

“Based on a ~3.5bL wholesale agreement, which we estimate earns a 1.5cPL gross margin, we estimate an earnings impact of ~5% from CY18, and ~5% to our DCF.

“For now we make no changes to our earnings forecasts or valuation but flag this as a risk.”

It’s just another angle in the Woolworths petrol auction, which is as much about loyalty schemes, discount vouchers and convenience strategies as it is price.

The analysts’ comments come after Street Talk revealed BP had edged in front of Caltex in the mooted $1.6 billion auction.

However – and as Credit Suisse pointed out – in a rational world surely it would make sense for Caltex to outbid BP.

“We still want to believe in common sense,” the analysts said.

“We really struggle to see how a rational business like BP will economically be able to outbid Caltex – indeed we viewed them as sellers in Australia, not buyers, historically.

“The Woolworths assets make sense for Caltex, and lost earnings is never good, but we applaud their capital discipline if they don’t chase it.”

The acquisition of Woolworth’s petrol business could lift Caltex’s annual earnings per share by 3.4 per cent if it secured the deal for 10.5 times earnings, Macquarie’s equities research team has calculated. Citigroup has put the potential earnings uplift at 5-8 per cent, assuming a deal price of $1.3 billion-$1.5 billion.

Extracted from Australian Financial Review.