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Date : 06/10/2022

Viva Energy Group Ltd (ASX: VEA) is Performing at the Highest Level Possible

One of Australia’s leading energy suppliers, Viva Energy Group Ltd (ASX: VEA), provides around 25% of the country’s liquid fuel requirements. Its primary operations fall into three categories: retail, fuels and marketing (RFM), and refining.

In addition to providing gasoline, diesel, jet fuel, and other petroleum products, the refining segment is the owner and operator of a refinery in Geelong, which is located in Victoria.

Fuel products sold under the Shell, Liberty, and other brands are distributed via a nationwide network of 1,330 service stations by the RFM division to retail operators and wholesalers serving commercial clients in aviation, maritime, and manufacturing.

At the moment, the organization is exerting the utmost effort to perform at the highest possible level.

Viva Energy Group Ltd News: 1H22 Key Financials

ASX: VEA stock is trading at $2.70 and has gained over 10% in the previous six months. The current market cap of the company is approximately 4.18 Billion AUD.

ASX VEA

  1. ASX: VEA is performing at the highest level possible, recording a revenue of $11.15 billion in the first half of 2022, increasing 59.58% YoY.
  2. Its NPAT was $520.9 million, increasing with a massive growth of 300%.
  3. The company announced an EPS of $4.52.
  4. Its EBITDA was $948 million, gained by 158% during 1H22 compared to the same period last year.
  5. At the end of the first half, the company had cash and cash equivalents of $324.10 million, increasing over 114%.

The effects of COVID-19 on Viva energy were devastating

The immediate effects of COVID-19 on Viva Energy Group Ltd’s bottom line were felt as local demand for fuel products dropped sharply. Viva Energy’s financial performance rose when the lockdowns finally loosened in 2021.

As part of Australia’s long-term fuel security package (FSP), the federal government provided the refinery with $40.6m in Fuel Security Services Payment (FSSP) due to the industry’s significance to the country’s energy security.

Primary transport fuels (gasoline, diesel, and jet fuel) processed from crude oil at the Geelong Refinery will earn Viva Energy at least 1 cent per litre under the award.

Success for the Geelong Refinery is a Government Priority

In recent years, competition from Asian refinery imports has been a major structural concern for Australia’s refining sector. Because of their cheaper labour and bigger, more modern facilities, Asian manufacturers can mass produce their goods at lower costs.

Due to this, Australia primarily depends on product imports from overseas refineries to provide the country’s fuel needs since the number of Australian refineries has dropped from 6 in 2011 to just 2 ongoing facilities today, Ampol’s plant in Brisbane and Viva Energy’s Geelong refinery in Victoria.

Seeing as how refineries play a crucial role in ensuring national energy security via large inventory positions and crude oil conversion capabilities, the situation has prompted the federal government to take steps to secure the continued sustainability of the country’s surviving refineries.

Profit margin performance are higher than ever before COVID

The company’s 1HY22 performance was outstanding, and they attributed this to the considerable and consistent expansion of refining margins. As the global economy opened in 2022, demand for refined goods rose significantly. Still, supply tightened owing to sanctions on Russian oil and lower Chinese exports.

The Geelong refinery kept running near capacity and made the most of the favourable business climate throughout the reporting period. The segment’s EBITDA increased by 747% on PCP, reaching $371 million.

Conclusion

Interestingly, Viva Energy Group Ltd’s retail profits improve as fuel prices fall, mitigating some of the effects of lower margins at the refinery. Recessions often lead to a drop in demand for refined goods. However, in our opinion, the supply side will continue to be tight if the sanctions on Russian oil and the restricted shipments from China stay in place. This will effectively limit the downside to Viva’s refinery margins.

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