Viva share price firm despite worrying trade update

The Viva share price stays firm despite trade update on COVID-19 impacts on the energy company's Victorian business.

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The Viva Energy Group Ltd (ASX: VEA) share price dropped only slightly today after the company reported on the ongoing impacts of COVID-19 on its Victorian business.

The Viva share price hit a low during the first 10 minutes of opening this morning, but recovered to close just 0.62% down at $1.59.

What does Viva do?

Viva is one of Australia's largest energy companies, making and delivering fuels and lubricants for engines, chemicals for industries and bitumen for roads.

The company owns and operates the Geelong Refinery, one of only four in Australia. This supplies more than 10% of Australia's fuel and 50% of all fuel used in Victoria.

In addition, Viva is the exclusive supplier of Shell fuels and lubricants in Australia, and services more than 1,250 petrol stations across the country.

Trading update

Viva advised the market that its retail business in other states and territories had offset the losses incurred from its Victorian business. Sales volumes in the alliance network were holding at 50 million litres per week and the retail margin environment remained supportive. The company expects a similar sales recovery in Victoria.

The commercial business – excluding aviation in Victoria – has not been largely affected by the pandemic. However, Viva has started cutting its capital expenditure and operating costs to cater for the overall lower sales across its retail and commercial portfolio.

Despite longer stage 4 restrictions in Victoria, Viva is confident that it is well-positioned to weather the pandemic.

However, the energy provider's refining segment continues to be hit hard by the global and local response to COVID-19. The refinery is operating at reduced production levels due to Victorian Government restrictions on passenger movements. Viva is closely monitoring the situation, with a full shutdown possible  given the weak outlook for oil-product demand.

Viva is working with the Australian Government on the viability of the sector and expects to update the market in October.

What did management say?

CEO Scott Wyatt said:

At the conclusion of this year's major maintenance event, we will have invested more than $600 million at the Geelong Refinery since we acquired the business in late 2014. We have shown strong commitment to manufacturing in Victoria and have extended this by continuing to operate our refinery throughout these challenging times while undertaking the major maintenance of our key processing units.

Unfortunately, the impacts of COVID-19 and the restrictions on mobility and the economy are putting extreme pressures on the refining business that we have not experienced before and are not sustainable over the longer term. We are closely monitoring the evolving situation and will continue to keep our employees, investors and stakeholders updated.

About the Viva share price

The Viva share price has recovered almost 40% since plummeting to a 52-week low of $1.13 in April. While now trading almost 18% lower than the $1.92 reached in July, the Viva share price has fallen 17% in year-to-date trading.

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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