Viva Energy shares up 6 percent on OTR Group ACCC acquisition approval

About Challenger GoldAbout Viva Energy

Viva Energy Group Limited (Viva Energy, the Group, ASX: VEA) is a fuel refiner, importer, wholesaler, distributor, and retailer operating a nationwide fuel supply chain with retail sales in each Australian state including Coles Express and Reddy Express convenience sites.

The Group’s convenience and fuel network operates 700 stores across Australia and exclusively supplies Shell fuels and lubricants to more than 1300 service stations. Viva Energy owns and operates the strategically located Geelong refinery in Victoria, and operates bulk fuels, aviation, marine, chemicals, and lubricants businesses supported by more than 20 terminals and 60 airports across the country.

ACCC not opposed to acquisition of OTR Group

The Australian Competition and Consumer Commission (ACCC) announced today that it will not oppose Viva Energy’s acquisition of OTR Group. The ACCC’s determination is conditional upon Viva Energy divesting 25 company-owned Coles express sites in South Australia to a purchaser approved by the ACCC. OTR Group operates 153 sites in South Australia under the Puma brand and 31 other sites predominantly in Northern Territory and Victoria. The ACCC expressed concern that choice for consumers in South Australia would be reduced given Viva Energy’s extended network being significantly larger than its next largest rival.

The ACCC has approved Chevron Australia Downstream as an acceptable purchaser of the Coles Express sites to be divested. In exchange for the 25 divestiture sites, Viva Energy will receive 13 Chevron sites located in Queensland, NSW, and WA.

Viva Energy expects to complete the acquisition of OTR Group in the first half of 2024, subject to Foreign Investment Review Board approval.

Strategic and financial benefits of OTR Group acquisition

The market likes this $1.15 billion acquisition because it is a strategically sound investment with immediate financial upside.

The strategic value comprises 3 aspects:

• Provides a pathway to Viva Energy achieving its vision to be Australia’s leading convenience retailer with more than 1000 stores
• Diversifies earnings exposure with earnings from Convenience increasing to 50 percent, reducing income dependence on traditional fuels from 70 percent
• Achieves significant scale and synergies in procurement, marketing and functional supports

Financial upside includes:

• $4.2 billion of sales revenue on a proforma forecast FY23 basis, including $2.4 billion of non-fuel sales
• $165 million EBITDA post integration and synergies of $60 million in 3 years, based on OFR’s pro-forma FY23 forecast
• OTR’s Quick Service Restaurant format generates $3.9 million annual sales per store verses Coles Express at $1.6 million
• Earnings per share accretion 11 percent on normalised, pro-forma FY22 basis

Looking Ahead

Viva Energy believes that the OTR Quick Service Restaurant format of fast food cuisine with minimal table service supports increased store dwell time, which is likely to be a key factor in successfully introducing electric vehicle recharging facilities over time. In the shorter term, Viva Energy sees a growth pipeline of about 90 new stores outside South Australia and further earnings upside from transforming suitable stores in Viva Energy’s existing national network to the ‘full service’ OTR Quick Service Restaurant format.