The successful float of fuel giant Viva Energy on Friday – the biggest IPO in nearly four years – will give Australia’s investment banking community plenty of heart.
After a few notable IPO misfires this year, including the delayed float of Latitude Financial, the $2.65 billion raise suggests the float window is open for meaty deals.
Viva, which will have a market value of $4.9 billion on listing, wouldn’t necessarily have been the easiest sell.
It’s a four-year-old company that has 110 years of history in Australia. It’s a collection of businesses – a retail division (which itself operates under a number of models), a refinery, a commercial division and a property division – with their own individual drivers. And it’s a company particularly heavily reliant on a series of partnerships and supply agreements.
But what has helped the sales pitch is the fact that Viva does have one of the most visible retail networks in the country – 1165 services stations, most of which run under the Shell brand and are operated through its joint venture with supermarket giant Coles.
It is this network that has been one of the keys to selling the float, particularly to retail investors. And it is this network that will be crucial to the growth ambitions of chief executive Scott Wyatt.
The veteran of Shell downstream business (from which Vitol bought the assets that comprise Viva back in 2014) says he’s been overwhelmed by the interest in the company, and pleased with the level of support from big cornerstone investors. It is understood that about a dozen funds from Australia and overseas invested about $100 million each.
But he’s particularly pleased with the reception from retail investors, and says the recognition Shell network commands with consumers (Viva licences the Shell brand from Royal Dutch Shell under a long-term agreement) was a big part of winning support from mums and dads.
That network is central to Wyatt’s growth plans.
Key population corridors
Having added around 70 sites in the last two years, Wyatt sees further room for growth, with a focus on key population corridors that will naturally also be the target for Coles.
Viva will also hunt for ways to improve margins on its retail fuel sales, partly through improved loyalty offers but mainly through the trend towards premium fuels; Viva launched its premium diesel product, Shell V-Power diesel, in 2017 but had only rolled it out to 69 sites by the end of March.
Like competitor Caltex, Wyatt also wants to lift revenue and margins from its petrol station convenience offering. This is something of a holy grail for the sector, which has long hoped the success of convenience overseas could translate to Australia.
That hasn’t quite happened yet, but Wyatt says the overseas experience “provides a bit of a guide to what’s possible in Australia”. Expect Viva and Coles to continue to refine their model for the local market.
Viva could well benefit from better fuel efficiency if it pushes consumers towards premium fuels. Similarly, the group could play a role in the rollout of electric vehicles, potentially providing charging stations and replacement fuel cells. (Although it is worth noting that the broader EV threat may be overstated; research quoted in the Viva prospectus from consultancy Wood Mackenzie suggests penetration of EVs in Australia remains lower than across the rest of the OECD, and this is likely to continue.)
Either way, Wyatt says Viva must have the right retail sites in the right places if it is to adapt to these sort of market changes.
Extracted from AFR