Report
Mark Taylor
EUR 850.00 For Business Accounts Only

Morningstar | Viva Announces Ongoing 2019 Challenges but our AUD 3.00 FVE Stands

We make no change to our AUD 3.00 fair value estimate for no-moat Viva Energy. This is despite lowering our 2019 EPS forecast by 20% to AUD 0.13 from AUD 0.16. We don’t see long-term implications in the drivers, with Viva still only in the early stages of implementing strategies to improve retail price competitiveness following the previously discussed re-jig of the Coles Express agreement.

Viva says its retail business continues to struggle with challenging trading conditions impacting retail fuel margins. Compared with February commentary, the retail EBITDA has been additionally impacted by around AUD 30-35 million through to the end of April, and we reduce our segment EBITDA forecast by a high-end AUD 35 million to AUD 452 million. This crimps our 2019 group EPS by approximately AUD 0.012 or 7.5%.

Further, Viva has reported a lower than anticipated refiner margin of USD 6.50 per barrel for March, bringing the year-to-date figure to just USD 4.60. At least the trend is in the right direction, reflecting improvement in regional refiner margins. But the outcome is lower than we were expecting, and we reduce our 2019 refiner margin target by 8% to USD 7.60 per barrel from USD 8.30. The change crimps our 2019 EPS forecast by a further 10% or AUD 0.015. Our long-term refiner margin forecast is unchanged at USD 10 per barrel in 2023 dollars.

Our Viva fair value estimate equates to an unchanged 2023 EV/EBITDA multiple of 8.3. Our fair value equates to a 2023 P/E of 15.5 times and dividend yield of 3.0%, both discounted at WACC, or 10 times and 4.5%, respectively, at today’s fair value. We continue to view longer-term earnings potential as attractive including margin improvement assuming Viva has a far keener eye on the marketing ball than when under the Shell umbrella, in addition to the new V-Power diesel offering. We assume the marketing margin improves to AUD 0.068 per litre versus 2018’s AUD 0.052, and our forecast of AUD 0.054 for 2019.
Underlying
VIVA Energy

Viva Energy Group Ltd. Viva Energy Group Ltd is an Australia-based integrated downstream petroleum company. The Company operates across three business segments: Retail, Fuels and Marketing; Refining; and Supply, Corporate and Overheads. Retail, Fuels and Marketing segment consists of retail and commercial operations. Retail, which supplies and markets fuel products and lubricants through a national network sites. Commercial, which supplies of fuel, lubricants and specialty products to commercial customers. Refining segment owns and operates the Geelong Refinery, in Victoria, which converts imported and locally sourced crude oil into petroleum products including gasoline, diesel, jet fuel, aviation gasoline, gas, solvents, bitumen and other specialty products. Supply, Corporate and Overheads segment owns contracted access to a national infrastructure network comprising terminals, retail sites, storage tanks, depots and pipelines positioned across metropolitan and regional Australia.

Provider
Morningstar
Morningstar

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.

Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.

We have operations in 27 countries.

Analysts
Mark Taylor

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