Viva Energy: Aussie market primed for biggest float since Medibank Private

THE company that supplies fuel to Coles Express and Shell petrol stations is about to join the Aussie share market in a $4.9 billion float — the biggest since Medibank Private.

VIVA Energy will start life on the stockmarket as a $4.86 billion company with owner Vitol keeping a 45 per cent stake in the fuel retailer and Geelong refinery owner.

In the nation’s biggest float since the Federal Government sold health insurer Medibank Private in 2014, shares in Viva have been priced at $2.50 — the bottom end of the price range initially sought.

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Viva, which supplies Coles Express petrol stations, will start life with a market value that would place it in the ASX 100 index but trade at an earnings discount to key rival Caltex Australia.

Owner Vitol Investment Partnership — an investment group headed by Swiss-based energy trading titan Vitol — has raised $2.65 billion by selling 55 per cent of a group of assets it bought from Royal Dutch Shell in 2014.

Viva Energy supplies Coles Express and Shell-branded petrol stations. Picture: Stephen Laffer

Float managers Merrill Lynch, Deutsche Bank and UBS yesterday closed the bookbuild process they used to settle on the price of the shares.

Morningstar analysts said there was “a lot to like about the Viva business” but warned its relationship with grocery heavyweight Coles and the rise of electric vehicles loomed as risks.

Viva had provided a price range of $2.50 to $2.65 to potential investors.

The final price will have Viva trade at 6.5 times the group’s underlying earnings before interest, tax, depreciation and amortisation.

Key rival Caltex trades at about 7.5 times earnings.

The top end of Viva’s price range would have seen it trade at 6.9 times earnings — a level that, for a stock new to the bourse, would be too close for investors to that of long-listed Caltex.

Viva Energy’s 100 million litre crude oil tank at its Geelong Refinery.

The Viva float has provided investment banks in Australia with a welcome shot in the arm.

It follows the cancellation of various proposed listings this year including that of online business lender Prospa, consumer finance company Latitude Financial Services and Western Australian gas business Quadrant Energy.

Viva is the nation’s second-biggest fuel refiner, producing 14.2 million litres a year, covering about 24 per cent of Australia’s fuel market.

It supplies fuel to a network of 1165 petrol stations and owns or leases almost 700 Shell-branded outlets.

Caltex, which operates the Lytton refinery in Brisbane, covers about 27 per cent and supplies 1955 petrol stations.

“Viva enjoys a strategically advantaged infrastructure base from which to refine, store, and distribute fuel across Australia,” Morningstar analyst Mark Taylor said in a report.

Viva Energy chief Scott Wyatt at the Geelong refinery.

“It is also one of the most vertically integrated players in the country with the second-highest refining capacity, second-most comprehensive pipeline infrastructure, the highest number of fuel terminals, and third-largest number of retail sites.”

Mr Taylor said the Geelong refinery, which Viva has returned to profitability, was also able to produce more higher-value products than its local rivals.

But he warned fuel sales by volume at Coles Express outlets fell 16 per cent last year and Viva would take a hit if Coles did not renew the arrangement on “attractive terms” when it was spun-out of Wesfarmers, due this financial year.

The uptake of electric vehicles was also a long-term risk to the industry, Mr Taylor said.