2nd UPDATE: Caltex Forecasts Sharp Fall In 1st Half Profit, Shares Dive

Analysts cut earnings estimates on Caltex Australia Ltd. (CTX.AU) Friday after the oil refiner blamed currency volatility and planned maintenance shutdowns for a forecast sharp fall in its first half profit.

Shares in Australia's only listed oil refiner, 50%-owned by Chevron Corp. (CVX), plunged 7% after its guidance for first half operating profit before significant items of A$140 million-A$160 million fell short of analysts' forecasts.

UBS was expecting A$176 million and Macquarie A$178 million compared to last year's interim profit of A$298 million.

Given that Caltex disclosed a first quarter operating profit of A$130 million, the guidance implies it's only going to make A$10 million-A$30 million in the three months to June 30.

Gordon Ramsay at UBS said he was disappointed, given the first quarter figure, stronger-than-expected regional refiner margins since January and Caltex's robust fuel production levels. Still, he kept a buy rating on the stock, noting its relatively low share market valuation and that significant maintenance has now been completed at its Lytton refinery in Queensland state.

CLSA analyst Mark Samter, however, said Caltex's woes could continue and kept a sell rating on the stock. "Given our view of the refining cycle, the fact that first half numbers were in fact aided by the unsustainable weakness in the Tapis crude price, keeps us all the more cautious on the second half," Samter said.

Sydney-based Caltex, which owns two of Australia's seven operational refineries, said the profit slump is largely attributable to exchange rate volatility. Like most refiners, the company has also been weathering a slump in regional fuel demand caused by the global economic slowdown as massive new regional refineries in places like India flood the region with supply.

The cycle, however, is expected to turn amid improving demand although artificially high margins could be slowing expected supply cut backs, slowing benefits to Caltex.

"Singapore refiner margins were stronger than expected due to the weakness in the Tapis crude price relative to other crudes," Caltex said.

"However, the higher average Australian dollar during the period, compared with the same period in 2009, negatively impacted the Caltex refiner margin."

A recent sharp fall in the dollar also negatively impacted Caltex by pushing up U.S. dollar costs, prompting it to take out foreign exchange hedging on 50% of its U.S. dollar crude exposure.

Macquarie cut its operating profit forecast for Caltex to A$159 million and kept a hold recommendation on its shares, saying it's encouraged by stronger Singapore margins this year.

"That said, it appears Caltex is struggling to capture some of this upside in the short term but should nevertheless benefit from the medium-term tightening that we expect in the Asian refining environment," Macquarie analyst Adrian Wood said.

Caltex said it expects to post a first half operating profit including significant items of A$130 million-A$150 million. Bottom line profit, including the value of its stockpiles is expected to be between A$125 million and A$145 million, down from A$362 million last year.

-By Sydney bureau; 61-2-8272-4680; djnews.sydney@dowjones.com

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