ASX:VEA
Viva Energy Group Ltd
Investment Summary
The fund managers believe that Viva Energy Group Ltd (VEA) presents a compelling investment opportunity, currently trading at approximately $2.93 to $3.51 per share. In their opinion, the company's healthy balance sheet and a forward Price-to-Earnings ratio of approximately 11x indicate strong fundamentals. Furthermore, they anticipate a significant milestone with the return of refining capacity and the successful integration of the OTR acquisition, which could increase Viva's fuel network to over 1,000 locations. Fund managers noted the potential for non-fuel earnings to rise from ~30% to ~50% of the business mix, driven by synergies and improved margins from the Reddy Express and OTR models. Despite recent challenges and a disappointing first half 2025 guidance, a recovery is expected in subsequent periods, with management retaining a $500m EBITDA target for its Convenience & Mobility division. Overall, the fund managers view the current share price as trading at a substantial discount to global peers, presenting significant medium-term earnings upside potential.
Commentary From The Managers
L1 Capital
28 Feb 2025
$1.73
- Viva Energy Group shares declined -34% following 2024 results.
- Results were in line with guidance and market expectations.
- First half 2025 guidance for Convenience & Mobility was below market expectations.
- Declines attributed to slow ex-tobacco convenience sales growth and sharp declines in tobacco sales.
- Declining retail fuel margins were also a concern.
- Second half 2025 expected to improve significantly due to acquisitions and synergies.
- Acquisition of remaining interest in Liberty Convenience anticipated to boost performance.
- Synergies from combining Coles Express and OTR businesses expected to drive growth.
- $50m cost-out program underway to improve margins.
- Potential for recovery to more normal fuel retail margins exists.
- OTR is recognized as a high-quality retail offering.
- Significant earnings upside from rolling out OTR to Coles Express sites.
- Management retains $500m EBITDA target for Convenience & Mobility business.
- Viva's Commercial business performing well with $470m EBITDA in 2024.
- Refining margins trending higher after a low in 2024.
- Viva trades at a substantial discount to global peers despite medium-term earnings upside potential.
Endeavor Asset Management
30 Sept 2024
$2.93
- Endeavor Asset Management bought Viva Energy (VEA) in September after thorough research and management discussions.
- VEA operates three divisions: 1) Convenience & Mobility, 2) Commercial & Industrial, and 3) Energy & Infrastructure.
- The focus is on the first two divisions.
- VEA owns and operates the Reddy Express (formerly Coles Express) network in Australia, generating revenue from fuel margins and convenience sales.
- The acquisition of On The Run (OTR) introduces a proven model to maximize in-store returns.
- Reddy Express stores average $1.6M in revenue with $200K operating margin.
- OTR stores earn $2.5M–$3.5M with $300K–$700K margins.
- There is an expectation that 80% of Reddy Express stores will convert to the OTR model over the next five years, effectively doubling margins.
- Management is slightly behind schedule but remains prudent.
- A 20%+ return on capital is anticipated.
- VEA offers a 5%+ fully franked dividend yield during the wait.
L1 Capital
31 Dec 2023
$3.51
- Viva Energy Group shares increased by +16% following the investor day in November.
- The ACCC's decision not to oppose Viva’s acquisition of OTR Group contributed to the rise.
- Viva operates a leading fuel distribution network including the Geelong Refinery and over 700 retail stores in Australia.
- During the investor day, Viva outlined a growth strategy aiming to double EBITDA to >$1,250m over five years.
- The acquisition of OTR is deemed transformational, expanding Viva’s network to >1,000 sites.
- This acquisition will increase the proportion of non-fuel earnings from ~30% to ~50% of the business mix.
- Expected run-rate synergies from the acquisition are estimated at US$60m p.a..
- The acquisition is also anticipated to deliver significant EPS accretion.
- L1 Capital continues to hold its position in Viva Energy due to these favourable developments.
Cerutty Macro Fund
30 Sept 2023
$3.00
- Cerutty Macro Fund continues to monitor Viva Energy Group Ltd (VEA).
- VEA is currently trading on a forward Price-to-Earnings ratio of approximately 11x.
- The company maintains a healthy balance sheet.
- VEA has faced recent challenges due to a compressor issue during planned maintenance.
- Anticipation of refining capacity returning in the latter part of calendar year 2023 is significant.
- This return could lead to a potential re-rating for the company.
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.