Viva Energy: refining margin recovery tests patience on convenience integration

Volatile refining margins, a messy Coles Express and OTR integration, and a wave of illegal tobacco sales have made Viva Energy one of the more frustrating positions for its fund manager holders, even as several signs of improvement started to emerge through early 2026.

31 May 2026 · 6 min read

Viva Energy Group Ltd (ASX: VEA) has tested even its most committed fund manager holders through 2025 and 2026, as volatile global refining margins collided with a genuinely difficult integration of its convenience retail businesses. L1 Capital captured the frustration most directly in a November 2025 webinar, describing Viva as the most frustrating spot in its portfolio, down around 25% year-to-date, hit simultaneously by weak refining margins, integration difficulty across multiple retail businesses, and the impact of massive illegal tobacco sales on convenience gross margins.

We think each of those challenges are likely to get incrementally better over the next year. We've already seen a pretty substantial improvement in refined margins. The integration is starting to get some traction, and the government is starting to take some belated action in controlling illegal tobacco sales.

L1 Capital, Webinar, November 2025

Refining margin volatility drives the swings

Global refining margins have been the single largest swing factor for the stock. L1 Capital noted in July 2025 that margins declined sharply on macroeconomic fears following the April Liberation Day tariff announcement, before recovering as the Iran conflict escalated. By November, margins were rising again on Russian trade sanctions and refinery closures, which L1 said could offer substantial earnings upside if conditions persisted, enough to offset ongoing integration and market challenges in the Convenience business.

The OTR rollout remains the core convenience thesis

Despite the near-term turbulence, the strategic logic behind combining Coles Express and OTR (On The Run) has stayed intact for L1 Capital. The fund noted in July 2025 that OTR remains a proven, high-quality fuel and convenience retail offering, with significant earnings upside potential from rolling it out across the well-located but historically under-invested Coles Express network, where initial conversions were performing well. Management retained its $500 million EBITDA target for the Convenience & Mobility business, up materially from $231 million in 2024, even as Pendal Group's February 2026 coverage showed overall convenience sales growth still flat excluding tobacco, with legacy Express sites continuing to trade negatively.

A revised fuel security package provides a floor

A meaningful positive catalyst arrived in March 2026, when Pendal Group reported the stock rose 10.3% after Viva Energy reached an agreement with the federal government to amend the terms of the Fuel Security Support Package. The revised terms better reflect how refinery costs have evolved in recent years, with back-testing suggesting support payments under the new framework would have been approximately double prior levels, and a long-term package targeted for finalisation within the calendar year. The following month, Pendal noted Viva Energy and Ampol were named in a government scheme to underwrite spot fuel purchases via Export Finance Australia, designed to shore up regional and rural supply, a modest commercial positive that also underscored the strategic importance both companies play in the country's fuel security.

Viva, by contrast, reported solid results and remains highly prospective for the years ahead. We've allowed this position to increase in size and is presently a top-5 holding for the portfolio.

Monash Investors, Monthly Report, August 2025

What managers are watching next

With Monash Investors having allowed its Viva Energy position to grow into a top-five portfolio holding in August 2025 on the view the company remained highly prospective, and L1 Capital pointing to incremental improvement across refining margins, integration traction and government action on illegal tobacco, the catalysts fund managers are tracking most closely are the finalisation of the long-term Fuel Security Support Package, continued OTR conversion performance across the Coles Express network, and whether refining margin strength proves durable enough to offset the Convenience business's slower-than-hoped turnaround.