Investors wait to see if Vivo can make Engen acquisition a success
The pan-African fuel retailer believes its bold moves into the continent will pay off
Vivo Energy, the company behind the Shell and Engen brands in Africa, reported a 13% increase in net income as it looks to massively expand its footprint across the continent.
In its first set of annual results since it listed on the London Stock Exchange and JSE 10 months ago, Vivo Energy reported net income of $146m for the year ended-December, up from $130m in 2017. Gross profits also increased 2% to $680m and volumes grew 4% to 9.4-billion litres. The company declared a full year dividend of 1.9 US cents per shares.
Vivo Energy already had an extensive network of Shell-branded stations across the African continent but has been catapulted into eight new African jurisdictions when, last week, it concluded its $62m acquisition of 230 Engen service stations outside SA.
The company now operates 2,130 retail fuel sites in 23 countries African countries.
According to CEO Christian Chammas the company’s primary objective for 2019 is to fully integrate the Engen assets into the business.
The company is still to formulate a plan for the new assets but Chammas said Vivo was determined to show, "we are here and reinvesting and open for business".
The company will also continue to diversify, he said. Over the past year, Vivo added 119 nonfuel retail outlets to its portfolio which served to drive gross profits from nonfuel retail up 15%. The company is moving strongly into convenience retailing and also quick service restaurants, and in 2018 completed joint ventures with KFC franchisees in Ghana and Ivory Coast.
Vivo Energy has, however, had a hard time in Morocco where margins have been squeezed because of a consumer boycott of fuel brands in the northern African nation and a subsequent call to limit the profit margins of fuel distribution companies. The retail fuel segment in Morocco contributed 18% to Vivo’s earnings before interest, tax, depreciation and amortisation in 2018, down from 29% in the 2017 financial year.
In a note, Credit Suisse research analysts said the company results and guidance were broadly as expected although the dividend was disappointing and fell short of their consensus forecast of four US cents. Net debt of $318m was also slightly higher than their forecast of $275m.
The Vivo share trades on the JSE at R24.75, down from its listing price of R30 in May 2018. It is seen as trading at a discount to its peers. The Credit Suisse analysts said it will likely only narrow when the company demonstrates it can make a success of the Engen acquisition.
Another factor that could reduce the discount would be if the government in Morocco decides against imposing caps on the fuel price.