Viva’s 3Q25 trading update reveals challenges still exist in its Convenience segment with a decline in tobacco gross profit. However, elsewhere in the business conditions are turning the corner. Gross profit for non-tobacco sales has increased and refinery margins are higher. Elevated refinery margins should persist for a few more quarters at least. We have reduced our Convenience and Commercial segment earnings for Viva, but lifted refining profits.

We transfer coverage of Viva Energy from Scott Hudson to Craig Woolford. In this report, we address the outlook for its convenience strategy and balance sheet position. We are positive on the refining margin outlook but expect the OTR conversions to be slower and more costly to complete.

We initiate coverage on Ampol at a time when convenience sites are executing well with upside from a better sales mix and more foodservice offerings. In the next two years the company should also experience a substantial lift in profitability in its fuels businesses as throughput recovers and capital projects are completed.

Coles has announced the sale of its Fuel & Convenience business to Viva Energy. The company emphasises its desire to focus on its “omni-channel” supermarkets and liquor businesses, as well as become Australia’s most “sustainable” supermarket. The deal is mildly EPS accretive and a decent price for Coles. On our estimates the sale price is 12x EV/EBIT (FY23e) and 0.6% EPS accretive in FY24e. We do see some downside risks over time as Coles may lose the grocery wholesaling business and the cost of fuel discounts may rise.