Trading in shares in Vivo Energy (VVO) went unconditional this week, after the pan-African petrol station and fuels business raised £548m in an initial public offering that valued the company at £2bn. At first blush, the company has been well-received by institutional investors: despite pricing at the lower end of its valuation range Vivo’s shares were up 10 per cent on their debut on 4 May, at the time of writing.
The valuation also suggests investors were willing to pay up for a group valued at $1.25bn (£920m) just over a year ago. That was the figure implied by Royal Dutch Shell’s (RDSB) sale of a 20 per cent stake to Vitol, although both energy majors will remain central to the investment case in Vivo, a licensed seller of Shell-branded commercial fuel and lubricant products. Vitol and co-founder Helios Partners will remain as investors for at least six months after admission.
The other significant change to Vivo’s valuation, and part of the rationale for a London listing, is its $399m acquisition of 300 branded service stations across nine African countries from rival Engen. Following the deal, which will be settled in new shares and $122m cash, Vivo’s network will extend to more than 2,100 service stations across 24 African markets.
It is those markets that investors including Fidelity International (3 per cent) and Capital Group (4.2 per cent) are most keen on. While improving fuel efficiency and the steady incursion of electric vehicles (EVs) is set to curtail service station revenue growth in Europe, much of Africa’s vehicle fleet is second hand, and lacks the power infrastructure needed to easily support a transition to EVs. “I think the whole sustainability focus in Africa will be a lot slower,” executive vice-president Mark Ware told us.
Added to this, demand for Vivo’s fuels is forecast to grow between 3.2 and 3.8 per cent a year until 2021, while the number of vehicles in Africa is forecast to grow at 7.4 per cent a year. An 82 per cent increase in fuel demand in the countries in which Vivo operates since 2000 helps to explain a return on capital employed of 15, 20 and 28 per cent for the past three financial years, respectively.
And while Vivo’s debut has arrived with oil prices higher than the group expected, Mr Ware said the relatively inelastic fuel consumption of Africa’s drivers has resulted in little impact on sales so far in 2018.
