Viva Energy Group Limited

VEA Details

Increase in Director’s Shareholding: Viva Energy Group Limited (ASX: VEA) engages in the manufacturing, distributing, and supplying petroleum products to retail and commercial customers. On 2 September 2021, VEA announced that Director Sarah Ryan increased his shareholding to 109,965 ordinary shares via a recent on-market purchase in the company.   

Cancellation of Shares & Consolidation:

• The company received $734.3 million in pre-tax proceeds from the sale of Waypoint REIT. VEA has decided to return $140 million capital to shareholders via a mix of an on-market buy-back and capital return.
• On 24 August 2021, VEA announced the cancellation of 39 million ordinary shares for a total consideration of $50 million in deciding to buy back shares in an on-market purchase.
• On 11 October 2021, VEA will hold a general meeting to seek shareholders’ approval for capital return and undertake share consolidation.
• For the capital return, VEA will undertake an equal and proportionate consolidation of 0.97 shares for each share currently held to accommodate the number of shares for the capital return post-shareholder approval. The proposed share consolidation will take place from 21 - 25 October 2021. The company will pay/ return $0.062 (of capital) per security on 22 October 2021, with the record date as 15 October 2021.

1HFY21 Financials:

• Revenue Growth: VEA posted a revenue increase of 8.2% YoY to $7,217 million in 1HFY21.
• Rise in NPAT: The company’s NPAT increased to $130.1 million in 1HFY21 from $11.1 million in 1HFY20.
• Net Cash Position: VEA had $44.7 million of net cash as of 30 June 2021.
• Underlying FCFs: VEA delivered $144.0 million of Underlying free cashflows (FCFs) in 1HFY21, up by $46.9 million via robust cash generation from its Commercial and Retail segments.
• Interim Dividend: The company declared a fully franked interim dividend of 4.1 cents per share for 1HFY21, payable on 23 September 2021.

Underlying Free Cashflows from 1HFY20-1HFY21; (Analysis by Kalkine Group)

Key Risks: The company faces commodity price changes that can impact its sales revenue. VEA also faces supply chain disruptions due to COVID-19 uncertainty prevailing.

Outlook:

• VEA expects COVID-19 lockdowns to affect the retail fuel volumes for the rest of 2021; however, it expects quick recovery as restrictions ease.
• The marine and aviation sales volumes will remain affected by border closures.
• The weaker fuel demand and an extended lockdown in NSW and Victoria will limit the refining production (both optimisation and intake).
• The company will hold Investor-day and provide an update on its strategy in Q4FY21.
• VEA estimates capex between $185-$210 million in FY21.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of VEA gave a positive return of 26.28% in the past six months and a positive return of 40.11% in the past year. The stock is currently trading towards its 52-weeks’ high level of $2.250. The stock of VEA has a support level of ~$1.950 and a resistance level of ~$2.690. The stock has been valued using a Price to Earnings Value based illustrative relative valuation method and have arrived at a target price with a correction of mid-single-digit (in % terms). The company might trade at a slight premium than its peers’ average, considering its increase in revenue, NPAT, net operating cash flows, and retail business growth. For the purpose of valuation, few peers like Woodside Petroleum Limited (ASX: WPL), Worley Limited (ASX: WOR), Oil Search Limited (ASX: OSH), and others have been considered. Considering the high trading levels, decent returns in the past six months and the past year, uncertainty surrounding the COVID-19 impacts, and valuation, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the current market price of $2.21 as on 7 September 2021, 12: 47 PM, (GMT+10), Sydney, Eastern Australia.

VEA Daily Technical Chart, Data Source: REFINITIV  

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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