Viva Energy – Australia’s largest IPO since Medibank Private

Eleanor Creagh

Australian Market Strategist, Saxo Bank Group

A leading integrated downstream petroleum company – operating for over 110 years in Australia

Viva Energy supplies 24% of the Australian downstream petroleum market, representing approximately a quarter of vast country's fuel needs. The company supplies through a nationwide 1,165-strong retail network of service stations, the majority of which are Shell branded, which has strong brand recognition. Viva has the sole right to use the Shell brand in Australia for the sale of retail fuels, operated through a retail alliance with Coles, one of Australia’s largest supermarket retailers.
Viva Energy is a leading supplier of fuel, lubricants, and specialty products to commercial customers in the aviation, marine, transport, resources and construction and manufacturing industries. 52 airports and airfields across Australia are supplied by Viva Energy.

Viva Energy owns and operates the Geelong Refinery in Victoria which contributes 25% of its earnings. This plant converts imported and locally-sourced crude oil into petroleum products including gasoline, diesel, jet fuel, aviation gasoline, gas, solvents, bitumen and other specialty products. These products are then distributed through Viva’s retail and commercial operations. This is Australia’s largest conversion capacity refinery. Additionally, Viva own 44 import terminals and depots throughout Australia giving them a competitive edge through ownership of supply chain assets. 

IPO details

Indicative pricing is between $2.50-$2.65 a share, to raise $3.06bn giving a potential market cap of $4.8bn to $5.1bn.
FY19 EV/EBITDA ~ 6.9X which is a 14.4% discount to its closest peer in the domestic market – Caltex (EV/EBITDA 7.81). This represents an attractive multiple and on listing Viva would be likely to trade at a similar valuation to Caltex.
FY19 P/E ratio 13.1X to 13.9X, ASX is currently 16.03X P/E.
Dividend yield is based on a 50% payout ratio, yielding 4.3%-4.6% fully franked, this represents more than 6% gross dividend yield with potential to increase.
Viva Energy will continue to own $646.4m of the ASX-listed Viva Energy REIT, yielding 6.4% cash per annum. 
Viva will list with net debt of $78m, which is very low and provides financial flexibility. This is set to reduce to $28.6mn by year end 2018 as $49.4m non-trade receivables will be settled. Low debt levels give management leeway for expansion, acquisitions, and growth of current retail/commercial businesses, further enhancing the attractive value proposition.
The strong net debt balance sheet position is supported by  a growing underlying EBITDA lifting from $535m in FY15 to $634m in FY17.
 The listing is expected to be completed on Friday July 13, 2018, the ticker will be VEA:asx and Saxo clients will be able to trade the shares or CFDs directly from their own accounts.

Enlarge
Source: Viva Energy IPO Prospectus

Access both platforms from your single Saxo account.

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)