Vitol/Vivo: volte-face reflects flagging share price performance of orphan stock

Traders can spot a bargain. Opportunism is the simplest explanation for the decision of Vitol, a London-run oil trader, to take private a company it floated just over three years ago. On Thursday it announced a recommended $2.3bn (£1.8bn) cash offer for Vivo Energy, which distributes fuel in Africa.

Vitol, which already owns a 36 per cent stake, made its first move in February. Back then, the shares were trading at half the 165p price at which they floated in 2018. That was a low-ball offer; the latest bid is almost a fifth higher. At $1.85 (139p), it represents a 25 per cent premium to Wednesday’s price. The shares rose 19 per cent to 132p on Thursday.

The independent directors have recommended the bid. They could do little else after the price was agreed with private investment company Helios, which had a 27.1 per cent stake. Helios was a co-founder of the business, formed through the carve-out of most of Shell’s African downstream business in 2011.

Helios must regret hanging on to so many shares at the time of the initial public offering. Even so, it has done well. It is thought to have invested a bit more than $100m in equity in 2011. The Vitol deal will bring in £472m, on top of the £231m it realised at the time of the IPO and dividends along the way.

With hindsight, the flotation was probably a mistake. Even then, the “Africa rising” narrative had lost its shine. The prospectus listed risks ranging from economic instability to corruption. It was an orphan stock, with no obvious peer group.

Public market investors were short-sighted. The company is highly cash generative; its cost-plus business model results in a relatively stable operating profit margin of just over 3 per cent, regardless of oil price volatility. It serves fast-growing urban populations. With electrification decades behind Europe, the transition from fossil fuels will not be rapid.

There is a certain inevitability about Vivo’s retreat from the London market. But there is scope for frustration from the minority of minority investors who reckon it was misunderstood and undervalued.

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