VIVA coming out of its shell
VIVA Energy Group (ASX code: VEA) is the second largest operator in the Australian retail fuels market with approximately 26% share across 1,165 sites. VEA has the sole right to use the Shell brand in Australia, and also has a large distribution network including 44 fuel import terminals and depots, and supplying 52 airports and airfields across Australia. VEA also sells a significant amount of fuel into the commercial market.
VEA listed on the Australian market in July 2018, with the Manager acquiring a position at IPO. As at 31 August 2018 the portfolio allocation to VEA was 3.4%.
Formerly part of the Royal Dutch Shell group, VEA was acquired in 2014 by new owners led by the Vitol Group. The Manager believes Vitol have adequately capitalised the business by reinvesting profits.
Refined product for VEA is either supplied by Vitol under a long term strategic relationship or obtained from its wholly owned refinery in Geelong. VEA also owns 38% of the Viva REIT which owns 434 sites.
VEA maintains an alliance agreement with Coles which expires in 2024. Whilst sales volumes from the Coles Alliance have fallen the Manager sees limited downside from present levels. Absolute profitability to VEA has increased due to a price reset in 2015 and VEA also remains leveraged to any improvement in volumes going forward. VEA is also rolling out new retail sites outside the Alliance which the Manger expects will add to volume growth.
VEA runs a capital light model with potential upside if Coles is successful in the convenience market. The Manager believes the Coles Alliance is structured favourably for VEA with the potential to benefit from higher convenience royalties or by adjusting up the wholesale fuel sales price.
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Vince is the Deputy Head of Equities at Perpetual Asset Management Australia and is the Portfolio Manager for Australian Share, Geared Australian Share and the Perpetual Equity Investment Company Limited (ASX:PIC).