Viva Energy

Diversified Business portfolio supports overall growth:Viva Energy (Proposed ASX code: VEA) is one of Australia’s leading integrated downstream petroleum companies. The company satisfies one quarter of Australia’s fuel need and supplies through its retail network of service stations and the majority of which are Shell-branded to its commercial customers across a diverse range of industry i.e., aviation, marine, mining, and transport commercial fleets. It operates three main business segments i.e., Retail, Fuels and Marketing; Refining; and Supply, Corporate, and Overheads. Over the period, the company has established marquee relationships with its clients such as Shell, Coles Express, Viva Energy REIT and Vitol. The Company has released prospectus to issue offer in between 959.6 million to 1,154.0 million Shares at an issue price of $2.50 to $2.65 per share and will raise a total amount of $2,398.9 Mn to a maximum of $3,058.2 million. It is expected that the shares will be quoted on ASX around mid of July 2018. However, it is expected that Vitol Investment Partnership will retain the shares in the range of 40% to 50% on issue immediately following Completion of the Offer, and it reserves the right to hold a noteworthy percentage of the Shares at that time taking into consideration market conditions and such other factors as it may consider relevant. The total number of Shares on issue at Completion will be capped around $1,944.5 million. All Shares will rank equally with each other. The objective of this offer is to get access in the capital markets to improve its capital management flexibility; provide liquid market for shares and an opportunity for others to invest in Viva Energy with the benefits of an increased profile that arises from being a listed entity and Vitol Investment Partnership with an opportunity to realise a portion of its investment in Viva Energy. Over the period of FY15-17, the NPAT surged up by 21.8% at CAGR basis, at the back of product mix growth, cost optimization strategy, reducing finance cost and impact of foreign exchange gain during the same period. On balance sheet front, the company had a pro forma net debt position of about $78.0 million as at 31 December 2017, with cash and cash equivalents of around $159.2 million and drawn down debt of approximately $237.2 million. Based on the robust outlook, the company has set a target of dividend payout ratio in the range of 50% - 70% of Underlying NPAT. We note that to a large extent, VEA seems to be scoring higher on earning visibility provided by strong demand for refined products, favourable vehicle usage trend and acquisition of more sites by Viva REIT which provide for growth earnings and better distributions over time. In view of the estimated valuation, the stock may be offered at a P/E multiple of around 15x, which might be close to its key peers. Given the offer price and the outlook on petroleum sector and robust macroeconomic environment, the IPO stands to be an interesting play.
 

Key Dates (Source: Company Reports)

 
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