Seeking Alpha
Long/short equity, special situations, momentum, event-driven
Profile| Send Message|
( followers)

Summary

  • VTTI, a master limited partnership formed to own and operate oil and refined petroleum product terminals and infrastructure, plans to raise $350 million in its upcoming IPO.
  • We are optimistic on this IPO as VTTI is already profitable and should be able to continue to generate stable revenues through its fee agreements, particularly with Vitol.
  • The firm's excellent quarterly distributions will also likely prove attractive to investors.
  • Energy sector IPOs have performed well in general in 2014, as well.

VTTI Energy Partners LP (NYSE:VTTI), a master limited partnership formed to own and operate oil and refined petroleum product terminals and infrastructure, plans to raise $350.0 million in its upcoming IPO.

The London, U.K.-based firm will offer 17.5 million shares, all of which are insider shares, at an expected price range of $19-$21 per share. If the IPO can price at the midpoint of that range at $20 per share, VTTI will command a market value of $821 million.

Filing, Underwriting

VTTI filed on June 19, 2014.

Lead Underwriters: Citigroup Global Markets Inc; J.P. Morgan Securities LLC

Underwriters: BNP Paribas Securities Corp.; BofA Merrill Lynch; Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A.; Credit Agricole Securities (NYSE:USA) Inc. Credit Suisse Securities LLC; Deutsche Bank Securities; Inc; HSBC Securities Inc.; ING Financial Markets LLC; Mitsubishi UFJ Securities , Inc.; SG Americas Securities, LLC; SMBC Nikko Securities America, Inc; Wells Fargo Securities, LLC

Among the World's Largest Independent Energy Traders

VTTI is a LP formed by its parent company (also VTTI) to own and operate refined petroleum product and crude oil terminals and infrastructure assets.

The firm holds a 36% interest in VTTI Operating, which owns six terminals for a total of 396 tanks with a storage capacity of 35.5 million barrels. These facilities are spread across Europe, North America, Asia, and the Middle East.

The firm's parent holds the remaining 64% interest in VTTI Operating; VTTI hopes to leverage its relationship with its parent and its parent's partners, Vitol Holding B.V. and MISC Berhad, to continue to expand its assets through further acquisitions from the parent as well as organic development and third party acquisitions. VTTI will have right of first offer on various other energy assets owned by its parent, including additional equity interests in VTTI Operating.

VTTI generates the great majority of its revenue through long-term fee-based contracts for terminal storage and throughput. The firm does not own any of the products it stores and does not participate in commodity trading. Most of VTTI's revenue comes through Vitol, which accounted for some 76% of the firm's revenues for calendar 2013.

Vitol is among the world's largest independent energy traders.

Valuation

VTTI offers the following figures in its F-1 balance sheet for the three months ended March 31, 2014:

Revenue: $73,500,000.00

Net Income: $18,600,000.00

Total Assets: $1,660,000,000.00

Total Liabilities: $1,007,200,000.00

Stockholders' Equity: $652,800,000.00

VTTI intends to make quarterly cash distributions of $0.2625 per unit, which annualizes to $1.05 per unit, subject to the firm having sufficient cash available to pay the distributions. Assuming the price of units to be the midpoint of the expected range at $20, this would translate to a strong 5.25% annual yield.

Competitive Advantage

VTTI does face some competition, but the long-term nature of its contracts and its relationship with Vitol should allow it to overcome most competition. There are also very high barriers to entry in terminaling, including a lengthy development period, limited personnel, and very high construction costs. VTTI's existing facilities could also be expanded at significantly lower cost than a greenfield construction project for a new entrant.

Management Highlights

Robert Nijst has served as the CEO of VTTI's general partner since June 2014 and has been the CEO of VTTI's parent since 2006. Mr. Nijst previously worked in various roles over the course of 14 years at VOPAK and predecessor companies, most recently as president of VOPAK's Oil Europe and Middle East division.

Mr. Nijst received a degree in economics from Erasmus University in Rotterdam and a Master's Degree in Business Administration from IMD Lausanne.

Conclusion: VTTI Looks 'Well-Refined'

We are optimistic on this IPO and rate it a buy for income investors.

VTTI is already profitable and should be able to continue to generate stable revenues through its fee agreements. VTTI's relationship with Vitol in particular should provide it with both a consistent source of revenue and access to the personnel and relationships that the firm will need to continue to grow.

The firm's excellent quarterly distributions will also likely prove attractive to investors. Energy sector IPOs have performed well in general in 2014, as well.

VTTI also boasts a solid lineup of underwriters.

We would prefer not to see exclusively insider shares in this offering; however, we still believe that this IPO merits consideration.

We invite readers wishing to join the discussion on IPOs to click the +FOLLOW button above the title of this article -- and those looking for the latest developments to click +Get real-time alerts.

Note: As a large sample of information sources does not yet exist for VTTI, we have taken much of the information for this article directly from VTTI's S-1 filing.

Disclosure: The author has no positions in any stocks mentioned, but may initiate a long position in VTTI over the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Source: VTTI Energy Partners LP IPO Looks Well Refined For Income Investors