Viva Energy manages a network of 1100 service stations, the majority of which are branded Shell. The stations are operated by Coles Express under an alliance.

It also supplies commercial customers in a range of industries, including aviation. And it has a refining business in Geelong.

The company supplies 14 billion litres of petroleum products a year, which accounts for about a quarter of the fuel consumed in Australia. It is second to Caltex in market share.

The current owner of Viva Energy is Vitol Investment Partnership, which is associated with the global energy commodity trading company Vitol. Vitol supplies most of Viva’s oil products.

Vitol Investment Partnership acquired Royal Dutch Shell’s “downstream” operations in Australia in 2014. Since then it has acquired Shell’s Australian aviation operations, acquired 50 per cent of Liberty Oil and expanded the retail network.

It owns or has access to infrastructure, including terminals, storage tanks, pipelines and refuelling barges.

Viva Energy holds a 38 per cent interest in Viva Energy REIT, a listed property trust that operates a number of retail sites.

Viva Energy is led by chief executive Scott Wyatt, who has 30 years of industry experience.

Viva Energy is seeking to raise between $2.4 billion and $3 billion through an issue of up to 1.1 million shares at an indicative price of between $2.50 and $2.65 a share. The offer opened last Thursday and will close on July 10.

Upon completion of the issue the company will have a market capitalisation of up to $5.1 billion. Vitol Investment Partnership will continue to hold between 40 and 50 per cent of the listed company.

The company’s business plan includes the development of more retail sites, greater share in commercial markets, and increasing margins on fuel and non-fuel products. It has made a significant investment in the Geelong Refinery to increase its capacity and efficiency.

In 2016/17 the company had revenue of $15.7 billion, underlying EBITDA of $634 million and net profit of $361 million.

For 2017/18 it is forecasting revenue of $16.7 billion underlying EBITDA of $605 million and net profit of $324 million.

By 2018/19 it expects to be earning revenue of $17.2 billion, underlying EBITDA of $661 million and net profit of $370.1 million.

According to the OECD, demand for refined petroleum product in Australia grew at a compound annual growth rate of 0.9 per cent a year from 2010 to 2017.

While demand for petroleum products is flat or falling in a number of countries, Viva Energy cites research by energy consultant Wood McKenzie to argue that demand is likely to continue growing at its current rate in Australia. Trends contributing to this outlook include economic and population growth, continuing growth in demand for vehicles and rising usage levels.

In a pre-IPO report on the offer, Morningstar says the stock is price below its $3 a share fair value estimate of the company.

Morningstar says Viva’s infrastructure base is an advantage.

While Morningstar is recommending the stock, saying “there is a lot to like about the business”, it cautions that Viva is “not quite a high octane buy” because of its low growth outlook and lack of a strong competitive advantage.

It also cautions that investing in refining has been a problem for players such as Caltex in the past.

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