Chevron has indicated to Caltex it would terminate its licence agreement, including access to the Caltex and Vortex brands. This will occur over three years (including a six-month notice period, 18 months of exclusive use by Caltex, and 12 months of use by both Caltex and Chevron), when Caltex will start saving the full $18–20m licence fee, with partial saving in year 3.
Caltex will change the brand of its sites, and the EG-owned former Woolworths Petrol sites, to Ampol over a period of three years at a cost of $165m. This could be lower as part of broader network refurbishment program, although more marketing expenditure is expected as the Ampol brand is reintroduced to consumers.
Chevron sold its 50% shareholding in Caltex for $35 per share, or $4.7bn, in March 2015. Around this time, Caltex ramped up its Ampol Singapore operation, which reduced its requirement for Chevron-sourced fuel in the region. Puma Energy in Australia, which was built via $850m in acquisitions in 2013, has been acquired by Chevron for $425m. It comprises three terminals, 20 depots and 270 retail sites, with more than 1bn litres of transport fuels, and is now likely to enjoy the Caltex brand in the future and provide Chevron with access to the Australian market.
A new brand can be reinvigorating and lead to higher traffic and sales, both shop and fuel. This was a positive for 7-Eleven post its 2010, 295-site acquisition of the Mobil east coast network. For Caltex, this could also be a positive, although we are cautious for the following reasons:
- The Caltex and Vortex brands are better known than Ampol, and rebuilding awareness will take some time for customers focused on brand rather than location and convenience offering.
- With 750 company-owned sites, 530 former Woolworths Petrol sites and the broader reseller network, the rebranding covers a much larger percentage of the overall petrol station network than was the case for 7-Eleven.
- Convenience retail upside potential is already included in our estimates as part of the more modest – yet return on capital-sound – convenience retail strategy.
Our EPS forecasts have fallen 0.3% in CY20 and 0.7% in CY21, but increased 0.4% in CY22 and 2.1% in CY23, as we expect Ampol branding expenditure to more than offset by lower licence fees in the medium term. We maintain our Hold recommendation with a $35.00 target price.