Viva Energy Group Limited (VEA)
BUY

Unrefined

 22 Feb 2023
Sector: Energy

FY22 RESULT

Need To Know

  • Big miss in Refining as cost base blows out
  • Retail and Commercial both strong
  • Higher dividend but VEA wimped out on capital management

Not only did Viva Energy shoot itself in the foot with a comical Refining result, but its messaging on what happened was silly.

Result. At the group level, VEA reported FY22 EBITDA of $1,076m. In the context of its enterprise value of ~$4.4bn, that is big. Free cash flow amounted to US$767m representing a yield of around 17%. The company ended the financial year with net cash of $291m and will pay shareholders a full year dividend of 27cps (final dividend 13.3cps), a 70% payout ratio. The business saw sales volumes increase 9% to 14.3bn litres, almost back to pre-pandemic levels.

Commercial EBITDA (RC) jumped 54% to $335.3m as demand sprouted in aviation, marine, wholesale and agriculture.

Retail EBITDA (RC) increased 33% to $249.6m on increased sales. VEA has now added the Coles Express Convenience and Retailing business.

Refining was a circus. EBITDA (RC) of $517.9m was indeed a bumper result, but way below what the market had been thinking ($612m) considering refining margins had been strong for most of the year. There were ‘one-off’ costs of $85m from shipping disruptions, freight and extra maintenance costs around the outage that occurred. Energy costs were $34m higher but this is not expected to reoccur. For the last few years, the Refinery has run a cost base around $200m each year, but someone took their eye off the ball and costs ballooned to an annualised $400m in 2H22. 

Investment View

Investors will want to know much more about how the refining cost base blew out so badly. It ruined what should have been a big day out for VEA management who have otherwise turned out a good company result.

The dividend policy is a payout ratio of 50-70% of the RFM net profit and 50-70% of the Refining net profit (on an annual basis). The FY22 total dividend was at the top end of the range, which was justified given the strong annual result, but the Board has kept its powder dry, preferring a disciplined approach, noting the gearing target is 1.0-1.5x.

Despite the Benny Hill moment around the Refining result, VEA remains attractive at the current price. 

Figure 1: VEA FY22 RESULT

Figure 2: VEA EBITDA (RC)

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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 fuels, aviation, bitumen, marine, chemicals and lubricants business.

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