Viva Energy Group Limited (VEA)
BUY

Flying

 27 Apr 2023
Sector: Energy

1Q23 TRADING UPDATE

Need To Know

  • Group EBITDA $292.9m in the quarter, +70% on last year
  • Strong commercial result boosted by aviation
  • Refining margins easing but remain historically high

A monster contribution from Commercial has Viva Energy on course for an excellent interim result in June. The company’s confidence is brimming as demonstrated by the release of quarterly earnings figures (new enhanced disclosure at a quarterly) to emphasise the state of current trading.

Commercial. EBITDA (RC) leapt 65% to $132.7m on higher sales volumes boosted by increased aviation activity. Earnings are expected to moderate over the rest of FY23 as seasonal factors kick in but this result underlines the strength of the business.

Retail. EBITDA (RC) reached $71.1m, up 8% on pcp with sales volumes +4.5% over 1Q22.Completion of the Cole Express transition will happen in May, a little later than expected.

Refining. The Geelong refining margin of US$14.70/bbl and 10.1m bbls of intake generated EBITDA (RC) of $97.1m for the quarter. Operating costs are broadly in line with FY22, but shipping costs appear to be stubbornly high. Planned major maintenance (one month) at the refinery will occur in 2Q23.

Investment View

A very positive update from VEA revealing the muscular performance of the high multiple commercial business. As the acquisition of OTR finds its way into the equation, it will substantially change the risk profile of the group and the valuation multiple it should trade on, in our view. 

With more than half the group earnings to be non-fuel, and with abundant growth options in convenience retailing, we think VEA should attract a similar multiple to that of Canadian peer Alimentation Couche-Tard Inc (ALD.CA) which recently paid 8x EV/EBITDA for a similar business (to OTR) in Germany. 

VEA has given itself a head start on the competition in Australia with the OTR acquisition without compromising its balance sheet (pro forma gearing 0.6-0.8x) and EPS accretion of 6% on pro forma FY22 results.

Figure 1: REFINERY GRM AND MARGIN

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Stock Overview

Share Price

Company Overview

Viva Energy is an energy company that supplies about one quarter of Australia’s liquid fuel requirements. It has 1,345 service stations, owns and operates the Geelong Refinery in Victoria and operates a bulk fuel, aviation, bitumen, marine, chemicals and lubricants business.

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