Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

HK Type 4 license through Ballingal Investment Advisors Ltd. 

I'm a highly experienced sell-side analyst with in excess of 22 years of covering Asia Pacific equities, the past 19 years immersed in event strategies encompassing M&A risk arbitrage, directional long/short, stub trades and restructuring.  

My background also includes accountancy (liquidation/bankruptcy/receivership) earlier in my career and as a chief financial officer of a global commodity company based in the US and Mexico.

Pan-Asia Catalysts/Events

Caltex's Proposed Retail IPO Triggers Revised Bid From Couche-Tard

Quiddity Advisors

Event-Driven

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The risk <a href="https://www.smartkarma.com/entities/alimentation-couche-tard-inc" target="_blank" data-smartkarma-citation="entities:25103:1" rel="noopener">Alimentation Couche-Tard (ATD/A CN)</a> would walk away from <a href="https://www.smartkarma.com/entities/caltex-australia-ltd" target="_blank" data-smartkarma-citation="entities:345:1" rel="noopener">Caltex Australia (CTX AU)</a> was ever-present in a post-COVID-19 world. It was, after all, a non-binding, indicative conditional <a href="https://www.asx.com.au/asxpdf/20191126/pdf/44bylc73fnjmbn.pdf" target="_blank" rel="noopener">proposal</a> on the 26 Nov 2019, not a formal Offer.
(Although, as seen in <a href="https://www.smartkarma.com/entities/metlifecare-ltd" target="_blank" data-smartkarma-citation="entities:19219:1" rel="noopener">Metlifecare Ltd (MET NZ)</a>, apparent watertight transactions potentially allow Offerors to rescind their obligation.)
The tone of ATD's departure was, however, conciliatory, making it clear negotiations remain open-ended. 
Caltex is down 21% from its undisturbed price after discussions with ATD were officially <a href="https://www.asx.com.au/asxpdf/20200420/pdf/44h2dcklys4288.pdf" target="_blank" rel="noopener">abandoned</a> on the 20 April, having touched a low of A$18.32 on the 23 March.
To put that in perspective, convenience retail peers are down 19% on average since the proposal was tabled last November, which is largely distorted by <a href="https://www.smartkarma.com/entities/parkland-fuel-corp" target="_blank" data-smartkarma-citation="entities:25189:1" rel="noopener">Parkland Fuel (PKI CN)</a>'s 43% decline. ATD and <a href="https://www.smartkarma.com/entities/casey-s-general-stores-inc" target="_blank" data-smartkarma-citation="entities:7192:1" rel="noopener">Casey's General Stores (CASY US)</a> are down 7% and 6% respectively.
Peer refiners (<a href="https://www.smartkarma.com/entities/new-zealand-refining-co-ltd" target="_blank" data-smartkarma-citation="entities:13114:1" rel="noopener">New Zealand Refining (NZR NZ)</a> &amp; <a href="https://www.smartkarma.com/entities/s-oil-corp" target="_blank" data-smartkarma-citation="entities:1667:1" rel="noopener">S Oil Corp (010950 KS)</a>) are down 40% on average. This is the key swing factor.
On the <a href="https://www.asx.com.au/asxpdf/20200406/pdf/44gqn4td6hy041.pdf" target="_blank" rel="noopener">6 April</a>, Caltex said it would bring forward the start of, and extend the duration of, its planned shutdown of the Lytton refinery in Queensland, which will now commence next month, brought about by the reduced demand for fuel. Refiners are in a position such that unless at full (or near to full) capacity, it is not economically viable to operate. Mothballing the refinery is less costly than operating with reduced margins.
Caltex said its refining margin at Lytton had all but halved in the past last year. FY19 margins were  US$7.34/bbl, falling to US$5.78 in January and US$4.14 in Feb. The average was US$4.87 in the <a href="https://www.asx.com.au/asxpdf/20200416/pdf/44gzn35z1mcw1b.pdf" target="_blank" rel="noopener">1Q20</a>.
The refinery shutdown will last to August and a decision to reopen is predicated on  “when margin conditions have sufficiently recovered’’.
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And, EG Group, which pitched a (then perceived) lower offer on the <a href="https://www.asx.com.au/asxpdf/20200219/pdf/44f735693ts55k.pdf" target="_blank" rel="noopener">19 Feb</a>?  Not a word, and nothing definitive since Caltex rejected EG's proposal on the <a href="https://www.asx.com.au/asxpdf/20200302/pdf/44fnbj3wwj2jnj.pdf" target="_blank" rel="noopener">2 March</a>. 
Should you buy here? No. Closer to A$19 is where I'd get involved.


The risk Alimentation Couche-Tard (ATD/A CN) would walk away from Caltex Australia (CTX AU) was ever-present in a post-COVID-19 world. It was, after all, a non-binding, indicative conditional proposal on the 26 Nov 2019, not a formal Offer.
(Although, as seen in Metlifecare Ltd (MET NZ), apparent watertight transactions potentially allow Offerors to rescind their obligation.)
The tone of ATD's departure was, however, conciliatory, making it clear negotiations remain open-ended. 
Caltex is down 21% from its undisturbed price after discussions with ATD were officially abandoned on the 20 April, having touched a low of A$18.32 on the 23 March.
To put that in perspective, convenience retail peers are down 19% on average since the proposal was tabled last November, which is largely distorted by Parkland Fuel (PKI CN)'s 43% decline. ATD and Casey's General Stores (CASY US) are down 7% and 6% respectively.
Peer refiners (New Zealand Refining (NZR NZ) &amp; S Oil Corp (010950 KS)) are down 40% on average. This is the key swing factor.
On the 6 April, Caltex said it would bring forward the start of, and extend the duration of, its planned shutdown of the Lytton refinery in Queensland, which will now commence next month, brought about by the reduced demand for fuel. Refiners are in a position such that unless at full (or near to full) capacity, it is not economically viable to operate. Mothballing the refinery is less costly than operating with reduced margins.
Caltex said its refining margin at Lytton had all but halved in the past last year. FY19 margins were  US$7.34/bbl, falling to US$5.78 in January and US$4.14 in Feb. The average was US$4.87 in the 1Q20.
The refinery shutdown will last to August and a decision to reopen is predicated on  “when margin conditions have sufficiently recovered’’.

And, EG Group, which pitched a (then perceived) lower offer on the 19 Feb?  Not a word, and nothing definitive since Caltex rejected EG's proposal on the 2 March. 
Should you buy here? No. Closer to A$19 is where I'd get involved.

Ampol

Caltex Australia: Should You Buy Here?