Caltex Australia chief executive Julian Segal shook off concerns about any impact from the growing take-up of electric cars on the initial public offering of 250 of its service stations, saying the business was future-proofed thanks to its strong retail arm.
The IPO, which analysts expect could raise about $1 billion, is proposed for the first half of 2020, with Caltex willing to sell up to a 49 per cent stake. The 250 ”core” sites in the proposed real estate investment trust make up about half of Caltex’s 500-strong petrol and convenience store retailing network.
Caltex shares climbed 6.97 per cent to close at $29.79 on Monday as analysts tipped a significant capital return from the proceeds. They were also buoyed by a separate announcement that Caltex’s profit margins on its petrol business improved in the second half.
Mr Segal, who signalled in August he would step down as CEO after 10 years in the role, said the time was right for the property IPO after a comprehensive review of the group’s network.
“There’s a lot of value that is locked in the company,” he said.
The property trust will receive rental payments of between $80 million to $100 million from Caltex in the first year. Most of the 250 sites are in New South Wales and Queensland. A further 50 sites have already been earmarked for sale, and they could fetch a combined $130 million.
Chief financial officer Matt Halliday said the group was adamant that it needed to maintain ultimate control of the sites and was only prepared to sell up to a 49 per cent stake.
“We absolutely must have clear operational and strategic control of these sites,” he said.
But with ultra low-interest rates around the world, investors chasing yield would be attracted, particularly with the strength of the Caltex brand.
“You’ve got the Caltex reputation,” he said.
RBC Capital Markets analyst Ben Wilson said the trading update was positive and the REIT would be ”well received as it unlocks value from the freehold sites via a strong REIT market”.
A ”significant portion” of the proceeds from the IPO could be returned via an off-market buyback in the second half of 2020, Mr Wilson said.
He estimated that the 49 per cent holding could be worth between $900 million to $1.1 billion based on similar REITs and a capitalisation rate of around 4.5 per cent.
Caltex said full-year earnings before interest and tax at the convenience retail division will be between $190 million to $210 million, thanks to better fuel margins in the second half. That’s still about 32 per cent below the previous year’s EBIT.
Caltex also generated market share gains in petrol retailing, will total fuel sales volume from convenience retailing arm now expected to be about 4.8 billion litres in 2019. Caltex reported falling first-half profits on August 27 after tough conditions in both retailing and refining.
Mr Segal said Caltex had been on the front foot in changing the Caltex sites from just selling fuel.
“They’re designed to attract customers to come for the shopping experience not just for the fuels.”
It would also be a long way into the future before electric vehicle use up-ended the business model, even though Caltex was factoring in a gradual shift: “I think electric vehicles will play an important role. The question is what is the timeframe,” Mr Segal said.
Earlier this month, Woolworths and Caltex said a new chain of stores selling fresh food, groceries and fuel would raise the bar in the $8.5 billion convenience sector and change the way people shop.
Australia’s largest supermarket chain and the nation’s leading fuel retailer unveiled the first of about 250 Caltex Woolworths Metro stores earmarked to open over the next few years under a long-term supply agreement.
A pilot store in North Ryde in Sydney carries about 2500 packaged grocery products as well as sandwiches and salads, along with fruit, vegetables, meat and prepared meals.
The stores, a mini Woolworths Metro in a Caltex service station, are designed to appeal to time-poor customers who can shop for food and fuel on the way to or from work.
Extracted from AFR