The Viva Energy Group Ltd (ASX: VEA) share price is currently 13% higher after announcing a new deal with Coles Group Limited (ASX: COL).
Viva Energy is one of Australia’s leading energy companies and supplies approximately a quarter of the country’s liquid fuel requirements. It is the exclusive supplier of Shell fuels and lubricants in the country across 1,200 service stations. It also owns and operates the Geelong refinery in Victoria, as well as bulk fuel, aviation, bitumen, marine, chemicals and lubricant businesses supported by more than 20 terminals and 50 airports and airfields.
The new Viva Energy – Coles deal
Viva Energy and Coles Express have extended their alliance to 2029 under the new deal, which will support future growth and cement the network as (supposedly) the leading fuel and convenience business in the country.
Viva Energy is going to take responsibility for retail fuel pricing & marketing while Coles Express will remain responsible for operating the stores. Coles Express fuel prices have been criticised in recent times for frequently being the most expensive in the country.
Interestingly, Viva Energy will collect the full retail fuel margin and receive an enhanced royalty on convenience sales whilst Coles Express will get the convenience store margin and receive a commission per litre on fuel sales.
Both businesses will participate in marketing & loyalty programs to help sales growth and will work on expanding the convenience network further.
Viva Energy said the new arrangements ensure it is able to develop, introduce and benefit from renewable fuel options in the future.
Due to the changes in the commercial terms and the margin foregone, Viva Energy will pay a one-off amount of $137 million to Coles Express, which will be funded by existing debt facilities. These new conditions are expected to come into effect in early March 2019.
Viva Energy CEO Scott Wyatt said: “I am excited by the benefits these new arrangements will enable us to deliver for both our customers and our shareholders.”
Is Viva a buy?
Clearly this is good news for Viva, which is why the share price has increased so much. It’s also telling that the Coles share price is currently down nearly 2%.
The Viva Energy share price is only back to what it was at October 2018, so I don’t think the current share price reflects great buy.
Viva Energy’s earnings are somewhat linked to the oil price, which can be volatile and unreliable, which is why I’m not personally interested in buying its shares – but I can see why investors are enthused by this news. I’d prefer to buy proven ASX shares such as the ones in the free report below.
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