Caltex is tipped to launch a $500 million-plus buyback when it releases its half-yearly result to reduce excess franking credits and to offset weaker earnings.

In a note yesterday, BAML analyst David Errington cut his price target on the stock to $29, just above yesterday’s close at $27.18.

The company declined to comment on the report other than to note past statements confirming potential buybacks.

Falling global oil prices have boosted Caltex’s petrol retail margins in the past quarter to offset weaknesses in other parts of the business, according to Mr Errington.

Caltex’s volumes were down 9 per cent, which reflected the higher than usual retail margins of 14.5c a litre.

This compares with more normal margins in the region of 9c a litre.

When global prices fall, retail margins often stay higher longer, which enables some catch-up for the retailer.

BAML is tipping earnings for the 2019 year to fall to $542m, from $545m last year, and to fall further next year to $523m.

Higher margins would help maintain 2018-year earnings but would mean lower profits going forward if volumes remain weak.

It noted the new Woolworths deal was costing Caltex about $80m in lost earnings.

Mr Errington said the company’s convenience store offering, The Foodary, was suffering through higher costs and the conversion of franchises into company-owned stores was more costly.

Extracted from The Australian