he share price of Caltex Australia Limited (ASX: CTX) has been under pressure recently despite striking a 15-year supply deal with Woolworths Group Ltd (ASX: WOW).

Caltex was supposed to have lost the contract, so investors should be pleased with the outcome although you couldn’t quite tell with the stock slumping close to 4% in the past three trading days.

If you are scratching your head in puzzlement, the upcoming initial public offer (IPO) of fellow fuel refiner and retailer Viva Energy could offer a reason for the underperformance.

Fund managers may be liquidating some of their positions in Caltex to participate in the share offer of Viva Energy, which is touted to be the biggest IPO since Medibank Private Ltd (ASX: MPL) in November 2014.

There isn’t anything sinister in Caltex’s share price retreat although the conspiracy theorist in me wonders if the drop in Caltex could serve a second benefit to fund managers (or fundies as they are affectionately referred to in the industry).

Viva Energy is currently going through a bookbuild, which is essentially an auction with fundies to price the IPO. Naturally, the price of Viva Energy is compared to the valuation of Caltex (its closest and only listed rival).

A weaker Caltex share price, the stronger the argument for fundies to pay the bottom of the indicative price range of between $2.50 to $2.65 a pop for Viva Energy, which is priced at a slight discount to Caltex.

It would be interesting to see if the share price of Caltex jumps after the price for Viva Energy has been set, which is believed to be tomorrow afternoon.

But if you are wondering which horse to back, I’d say stick to Caltex. It’s worth paying the small premium for the stock as there are notable differences between the two.

Macquarie Group Ltd (ASX: MQG) pointed out that fuel volumes at Caltex is growing slightly but are slowly trending lower at Viva Energy. Caltex is also in control of around 500 petrol stations around the country while Viva Energy has spun all of its sites into a real estate investment trust, Viva Energy Reit Ltd (ASX: VVR).

This means Caltex could unlock value by divesting its petrol stations or selling the sites and leasing it back.

This isn’t the only way Caltex could unlock value for shareholders. The company also has the balance sheet strength to undertake an acquisition to drive future growth and has greater exposure to premium petrol, an area where Caltex could extract further margin growth.

The deal with Woolworths will also benefit Caltex because Woolies will provide food retailing expertise to the convenience stores at Caltex’s stations and Macquarie believes the partnership will also improve the optionality on Caltex’s convenience portfolio.

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