Viva Energy Group Limited (VEA)
BUY

VEA - Stock Update

 13 Apr 2022
Sector: Energy

Event spotlight

Consistent news flows have been observed around Viva Energy recently with a mixed bag of information being released. The notable topics being:

  • Viva gained approval of funding for the plant upgrade at Geelong. This will give the company the ability to produce Ultra-Low Sulphur Gasoline.
  • The Federal government’s commitment of funding 50% of the original A$250m projected budget has been honored at A$125m although given the greater macro environment it appears VEA will carry an extra A$50m cost in the new projected budget.
  • Viva also announced a small acquisition of LyondellBasell Australia (A$15m upfront, up to a further $25m in payouts). LyondellBasell is an Australian polymer manufacturer and distributer. The acquisition is relatively small for VEA on an earning basis although it provides Viva with greater reach outside of the base business.
  • Refining margins remain elevated due to the Russia/Ukraine crisis which comes as a short-term impact. It appears that the possibility of quick resolution of the crisis is dwindling so Viva may potentially continue to benefit from the current refining environment for some time.

Although our investment thesis remains a Buy it’s important to remember that supply chain issues, cost inflation, macro uncertainty and the transitory nature of increased fuel demand are risks to VEA’s upside and that a balanced view must be taken.

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Company overview

Viva Energy Group is an Australian energy company that focuses on oil refining through their Geelong plant.

Re-opened travel, removed lockdowns, elevated refining margins, and increased regulatory backing all support a BUY rating for Viva although risks remain with supply chain disruptions and cost inflation. Along with this VEA’s recent acquisition potentially gives them a channel outside of the legacy business which could come as a longer term positive.

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