Caltex is shutting down its refinery for the short term and will re-open once margins improve. Morgan Stanley assumes margins of US$7/bbl for the latter part of 2020, increasing to a mid-cycle level of around US$10/bbl in 2021.

However, the lower margins go, the more the broker wonders about the long-term sustainability of refining in Australia.

Australian wholesale volume estimates are reduced by -25% for the first half of 2020 and -20% for the second half. This is to simulate a severe drop across the jet fuel business.

Morgan Stanley also understands there is limited flexibility regarding operating costs although reduces cost estimates marginally for 2020. Target is reduced to $27 from $34. Industry view is In-Line. Equal-weight.

Sector: Energy.

Target price is $27.00.Current Price is $24.51. Difference: $2.49 - (brackets indicate current price is over target). If CTX meets the Morgan Stanley target it will return approximately 9% (excluding dividends, fees and charges - negative figures indicate an expected loss).

© 2020 Acquisdata Pty Ltd., source FN Arena