Investors get peek into Viva Energy $650m earnings, question refinery outlook

Sarah Thompson, Anthony Macdonald and Joyce Moullakis
AFR

Fund managers have had their first chance to pore over what one of the year’s biggest floats, with Swiss commodities trader Vitol opening up on broad details of plans for a potential $3 billion float of petrol supplier Viva Energy.

Street Talk understands the current thinking is expected to see 60 per cent of Viva sold, with Vitol retaining the rest. That would help mitigate the concerns of some portfolio managers about sourcing of petrol and diesel post the float, given only part of supply comes from the Geelong refinery.

Investors are being told that earnings before interest, tax, depreciation and amortisation came in at about $650 million in the 12 months ended December 31, and that based on 15 billion-16 billion litres of fuel sales, Viva counts for just shy of a quarter of total volumes nationwide. 

Viva has embarked on a non deal road show with Bank of America Merrill Lynch and Deutsche Bank to pitch its ASX listing plans which are based on a run at the bourse in the next three or so months.

Investors said Viva was being pitched as a capital return story, given expectations of softening Asian refining margins and roughly flat demand for petrol and diesel, even though the company is understood to have done a good job growing marine and jet fuel in recent years.

Still, the dividend yield is expected to be softer than the circa 8.5 per cent of Kiwi close lookalike Z Energy.

Retailing is mostly through the Coles alliance, where some investors are pointing to some slippage in volumes before a more recent stabilisation. 

In contrast to calculations when Shell sold out from the downstream business in 2014 and the Geelong refinery was valued as a negative, refining has been going strong, and investors were told it currently accounts for about 25 per cent of earnings. There was, however, concern around the outlook from that unit from several fundies, sources said. 

Investors also made it clear they want to see a strong board at the helm to ensure Viva continues to access the best prices on fuel even after the partial exit by Vitol. But apart from chief executive Scott Wyatt, who is seen as a strong leader and is set to stay on, there is little word yet of prospective directors.

The potential float of Viva adds to the action swirling around the petrol market, with uncertainty still hanging over the fate of Woolworths’ proposed $1.8 billion sale of its petrol station network to BP given strenuous objections from the competition regulator.

Meanwhile, Australia’s biggest listed fuels supplier, Caltex, is in the middle of studying various strategic options, including a potential splitting of its business or the spin-off of its retail sites in a real estate investment trust, as Viva did in 2016.

Read more: http://www.afr.com/street-talk/investors-get-peak-into-viva-energy-650m-earnings-question-refinery-outlook-20180321-h0xsx7#ixzz5AZQucvh6 

Follow us: @FinancialReview on Twitter | financialreview on Facebook