Tuesday, May 21, 2024

Engen strengthens at the back of commercial business

Engen Botswana, the Botswana Stock Exchange listed petroleum outfit, leapt to the second position in the local share market, thanks to “ good volumes” from the commercial business that beat the management’s expectations.

The overall turnover, for the full year to March 31, 2006, was 51 percent better to P 680.2 million against the P 450.2 million recorded in the previous year, while costs were restrained with distribution and marketing held at P 15.3 million compared to P 22.8 million in the prior year.

“Engen Botswana posted sterling results, maintaining second overall market share by moving 23.9 percent of the total petroleum volumes for the period under review. The commercial business also had a fine year with good volumes, growth and profitability,” Engen’s sponsoring broker, Stockbrokers Botswana, said Friday.

“ For full year 2007, we expect the commercial business to continue to deliver organic growth as the group should maintain key mandates for supplying fuel lubricant to Orapa, Lethakane and Damtshaa mines, as well as Botswana Ash mines, Botswana Railways, CTO and several district councils,” it said.

It added: “Going forward, optimism for the prospects of the commercial division is underpinned by expectation for the revival of business activity triggered by the implementation of considerable P 5.8 billion development budget for 2006/2007.”
The major beneficiaries in the current government budget are expected to be the Ministry of Works which is working on plans of upgrading the road network across some parts of the country ÔÇô especially in Kgalagadi area, Maun and Bokspits.

However, with a number of government projects in the pipeline, a large scale price war between the petroleum companies is expected to ensue — that will squeeze the marginsÔÇöas the fight to win tenders. But, such moves will get punishment from the rising transportation costs on delivery that is likely to re-set the scene for a campaign to increase margins on delivery.

“The oil industry has been lobbying for an increase in the road delivery margin as rising local transport costs erode profitability. For a sector which is inherently commodity driven, such success will depend on adding value with a mix price on rebates and service delivery. We are confident that the group has established a solid platform to exploit growth opportunities as they build on existing strong relationship in the construction arena,” Stockbrokers Botswana’s research note said.

However, the research note stated that it expect the general retail market to be under pressure due to escalation in the administered prices that will see fuel competing with consumers’ wallets with the likes of cell-phones.
Engen is on a strong position with 30 service station outlets out of the 173 available nationwide with 17 of those being Quickshops. The group is hoping to open two new ones before the end of this year.

The brokerage firm recommended the stock for a buy with a fair target value of 446 thebe.


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