AFRICAN FUEL MARKET
Vivo Energy awaits DRC nod for service station deal
Vivo Energy is still waiting for regulatory approval from the Democratic Republic of Congo before it can wrap up the purchase of more than 300 service stations from Mauritius-domiciled Engen Holdings.
Described by management as a "game-changer" for the company, which listed on the London Stock Exchange as well as the JSE in May, the Engen purchase is expected to boost Vivo’s annual earnings by about $50m, from $376m in its 2017 financials. The Engen deal is also key to Vivo’s continued growth, said CEO Christian Chammas.
"The only way you can actually enter a new country is through acquisition and this acquisition gives us access to nine new countries in one go."
Vivo owns and operates more than 1,800 Shell service stations in 15 countries in Africa. A deal with Engen will take that to over 2,100 in 24 countries, including the DRC, Mozambique, Rwanda and Zambia.
Reporting interim results on Thursday, Vivo’s adjusted earnings before interest, tax, depreciation and amortisation grew 8% to $204m as volumes of fuel sold through its retail, commercial and lubricants businesses increased 4%.
Vivo declared a maiden dividend of one US cent a share and has committed to pay out 30% of net income to shareholders, notwithstanding a five-year plan in which it has budgeted $100-$120m a year on capex.
The group is also keen to beef up its nonfuel retail business with the likes of fast-food giant KFC, which opened its first restaurant at a Shell service station in the Ivory Coast during the period.
Nonfuel sales are especially key as so many of Vivo’s markets have regulated fuel prices, while in Morocco, one of its biggest markets, the country’s government is working on a plan to set fuel prices every 15 days, following public protests against general price increases.
At one stage, Morocco accounted for 29% of Vivo’s earnings but has slipped to 22%, although Chammas attributed the slide to faster growth from Vivo’s other markets.
Vivo’s shares have fallen steadily since listing at R30, but closed 0.19% higher on Thursday at R26.
Alpha Wealth portfolio manager Keith McLachlan said while Vivo is "one to watch, I don’t think it is one that is yet proven in a listed environment and it has a very full valuation".