First broker upgrade already in. Pretty much reiterating my own thoughts. JPM up from $2.95 to $3.40. I'd expect BAML and Macquarie to upgrade overnight or tomorrow

VivaEnergy

Geelong refinery driving materially higherearnings

Overweight VEA.AX, VEA AU Price (12 Jul 22): A$2.81 ▲Price Target (Jun-23): A$3.40 Prior (Dec-22): A$2.95

Viva confirmed our prior expectations thatelevated regional refinery margins are driving increased contribution fromGeelong. EBITDA guidance for the half is more than double the priorcorresponding period and well above consensus forecasts. While we expectmargins to normalize over time, we note the constraints that have driventightness in the regional refinery market remain. This could mean furtherupgrades to market estimates over time, in our view.

• Management guides to A$614 million in EBITDA for the half, driven by higher refining margins: Viva issued its June 2022 quarterly trading update today. The highlight from the announcement was a significant step up in achieved refining margins at Geelong to US$31/bbl (compared to US$8/bbl in the March 2022 quarter). Given the strong contribution from the refinery, management has guided to EBITDA of A$614 million for the June 2022 half, more than double the prior corresponding period at A$256 million.
• We expect consensus upgrades following the announcement: We had previously forecast US$25/bbl refining margin for the quarter despite higher global benchmarks so the announcement has resulted in a significant upgrade to our forecast. We are now well above market but expect consensus upgrades following today’s announcement. We continue to forecast margins normalizing over time but as we note below, regional refining margins remain elevated potentially implying further upgrades to come.
• Regional refining margins remain elevated but are likely unsustainable at current levels: Management attributed the higher margins to “strong global demand for refined products, especially diesel, coupled with tightening supply as a result of refinery closures, reduced exports from China and the broader impact of sanctions on the purchase of Russian oil.” We note that Singapore Refinery Margins (SWAM) remain above US$30/bbl with freight differentials also contributing to local margins. However, as we have flagged previously, we believe current margins are unsustainable and will normalize over time.