Lessons from Caltex

As an inefficient refiner, Caltex used to be one of the worst businesses on the ASX. The company devoured large swathes of capital and spat back paltry and unpredictable returns. It did this for years so, for years, we dismissed it.Until about 18 months ago when we took another look. We found what appeared a lousy business in aggregate was in fact a combination of one terrific business and an awful one.The ‘old Caltex’, dominated by refineries, was terrible. The company’s fuel retail business, however, boasted dominant market share, high barriers to entry and high incremental returns on capital. A...

As an inefficient refiner, Caltex used to be one of the worst businesses on the ASX. The company devoured large swathes of capital and spat back paltry and unpredictable returns. It did this for years so, for years, we dismissed it.

Until about 18 months ago when we took another look. We found what appeared a lousy business in aggregate was in fact a combination of one terrific business and an awful one.

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