Sunday, February 5, 2023

As fuel Prices remains high, distributing companies are Profiteering

With the price of fuel soaring to record levels this year, local petroleum companies are making historic profits, atleast based on the latest financial results of the only listed fuel distributor, Engen Botswana.

Engen Botswana this week posted a 75 percent increase in revenue to P2.14 billion for its 2022 interim period (HY 2021: P1.22 billion). The Botswana Stock Exchange quoted fuel distributor also registered an 88 percent growth in gross profit reaching P424.6 million (HY 2021: P226.2 million). On the other hand, the company’s operating expenses went down by as much as 69 percent to reach only P1.2 million (HY 2021:P1.7 million).

According to the financial data shared with capital markets last week, Engen Botswana’s Net profit registered  a 111 percent increase to P278.9 million (HY 2021: BWP132.2 million).

Despite the positive numbers on the Income Statements, Engen Botswana directors share that the performance of the company’s retail sales channel declined by 9 percent in comparison to the same period in 2021 due to a general reduction in disposable income caused by high inflation and some areas of the economy that have not yet recovered from Covid-19.

Botswana’s annual inflation quickened to its highest level this year, driven by price rises for fuel, food and miscellaneous services.

Kwabena Antwi (CFA), Portfolio Manager at a local asset management firm, Kgori Capital, says he expects inflation to remain elevated but to gradually reduce and sustainably trend within the central bank’s objective range from the second quarter of 2024.

Sharing the sentiments, is the banker – Absa Botswana which says in line with global developments of rising oil and food prices, inflation is posing a serious challenge for Botswana’s outlook. Another banker, First National Bank Botswana says domestic inflation should average 12.4 percent in 2022 fueled by the war in Ukraine.

Despite the run-away inflation in the local economy, Engen Botswana says it recorded a 56 percent growth in commercial sales channel compared to 2021.

“This performance was mainly attributable to the acquisition of new supply contracts which offset some of the effects of Covid-19”, reads part of the notes accompanying Engen Botswana’s 2022 interim period results.

The company also noted that while there were no new retail outlets that were streamed during the period under review,  it expects that there will be two new industry service stations before the end of the year.

Meanwhile global Oil prices rose on Friday and was reported to be headed for a second consecutive weekly gain supported by Opec+’s decision to make its largest supply cut since 2020. The cut from Opec+ comes ahead of an EU embargo on Russian oil and is expected to squeeze supply in an already tight market.

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