Viva Energy – Australia’s largest IPO since Medibank Private

Eleanor Creagh

Australian Market Strategist, Saxo Bank Group
Eleanor Creagh joined Saxo Bank Group in 2018 and serves as the bank's Australian markets strategist, responsible for creating, implementing, and monitoring equity strategies and research for traders and investors, as well as developing quantitative models and customised mathematical frameworks for institutional clients.

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.

Source: Viva Energy IPO Prospectus

Access both platforms from your single Saxo account.

Disclaimer

Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice or a personal recommendation and does not take into consideration your objectives, financial situation and needs. Saxo Capital Markets UK Limited will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information. We assume no liability for errors, inaccuracies or omissions contained within these materials.

It is important that you understand that with investments, your capital is at risk. We offer leveraged products which carry risk and can result in losses that exceed deposits. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more here.

Additional Key Information Documents are available in our trading platform.

Saxo Capital Markets UK is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871

Please read our full disclaimer - https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer