Rarely has a $95 million deal from a $7.8 billion company sparked such a reaction.
But Caltex Australia’s purchase of Victoria’s Milemaker Petroleum – a fuel retailer with 46 leasehold sites already supplied by Caltex – could speak volumes about its intentions on a much bigger matter.
Caltex had been seeking to buy Woolworths’ $1.6 billion-odd petrol business. However, BP is the frontrunner in that auction, leaving Caltex at risk of losing both the auction and its 3.5 billion litres a year supply contract to Woolworths.
And now it appears Caltex is moving on to other potential sources of growth, according to analysts.
“CTX management are confident in being able to replace foregone profits if they lose the WOW supply agreement,” Citi analysts told clients on Tuesday morning.
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Opportunities include payments for infrastructure use, return of alliance service stations, reduced competition and higher margins, ACCC spin off of some WOW stations for CTX to grow footprint, further small scale M&A, buy-backs, and an accelerated convenience strategy.
“We estimate these opportunities combined could add >20% to CY18 EPS estimates, more than offsetting lost earnings from WOW.”
Credit Suisse analysts said there were many ways investors could interpret Caltex’s latest move.
“Whilst another 46 sites being acquired in Victoria (where Caltex are under-penetrated, and do supply these sites anyway), might not be an ACCC deal breaker, it would hardly make the Woolworths review process easier,” Credit Suisse’s team told clients.

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“If we were Woolworths, we would be extremely worried that our mooted underbidder may no longer be there. Or, if you did want that under bidder back, you maybe have until 31st January 2017 when this deal is supposed to complete.”
Woolworths’ up-for-sale network includes about 500 branded Woolworths stores and analysts estimate it generates about $130 million to $150 million in annual earnings.
As for the Milemaker deal, Citi reckons it should be about 1 per cent accretive to Caltex earnings.
Caltex shares were down 0.7 per cent to $29.84 on Monday after announcing the acquisition.

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Extracted from Financial Review