Capital Markets

Oil stocks record mixed fortunes as Kenol falters, Total share grows 45pc

total

Total’s share price has grown by 45 per cent in the past one year to stand at Sh24.50.Photo/FILE

The two listed oil marketers on the Nairobi Securities Exchange have registered contrasting fortunes over the past year, with the lingering effect of KenolKobil’s problems in 2013 weighing down its share price.

Total’s share price has grown by 45 per cent in the past one year to stand at Sh24.50, in contrast to that of KenolKobil which has had an 8.3 per cent decline over the past year to Sh9.45.

Both companies returned to profitability last year, with Total turning around its 2012 net loss of Sh202 million into a profit of Sh1.3 billion.

KenolKobil recorded a net profit of Sh558 million, driven primarily by asset disposals which generated Sh1.4 billion, recovering from its Sh6.3 billion net loss in 2012.

The loss was the second biggest for a listed company at the NSE after Kenya Airways’ loss of Sh7.8 billion in 2012.

Analysts say that KenolKobil’s share has continued to suffer from the bad news of 2013 including disputes with the Kenya Pipeline Company and the Kenya Petroleum Refinery, the collapse of its proposed takeover by Puma Energy and the record loss.

The acquisition collapse signalled to investors the loss of potential capital injection.

“The share price movements are down to perceptions with investors not taking a longer term view of KenolKobil prospects which are better than Total’s,” said Sterling Investment Bank head of trading Eva Njuguna.

She said KenolKobil had launched a full restructuring after the losses while Total only restructured its loans, giving the former better prospects.

KenolKobil has in the past year aggressively managed its distribution and management expenses and cut the workforce from 574 to 338.

READ: Kenol eyes assets sale, cost to reverse NSE biggest loss

It has also exited low margin businesses like aviation fuel to focus on downstream segments which offer better returns and cut down expansion in Central and Southern Africa to conserve cash.

Total’s revenue growth came on the back of stronger network and consignment sales which saw it maintain a market share of 20.5 per cent. Its lubricants and aviation divisions also posted good growth.

Analysts say that the company has the advantage of support from its parent company in France, especially in terms of expansion.

“The issuance of non-interest bearing preference shares (Sh5.2billion in June 2012 and Sh3.9 billion in 2010) by parent company Total Outre-Mer to Total Kenya has vastly improved the balance sheet and cost structure of the business,” said Standard Investment Bank Research.

Analysts at Genghis Capital say the oil marketers have also benefitted from stable exchange rates and inflation, crude oil prices and the closure of the inefficient Kenya petroleum refinery.

According to Genghis, this will enable KenolKobil to continue its focus on internal efficiency.

“We expect improved financial performance in the 2014 financial year as the company continues to focus on efficiency through the reduction of financing and operating costs, corporate restructuring and risk reduction. Resumed dividends signal improved earning capacity,” said Genghis Capital in a coverage note on the listed oil companies.

In spite of the projected improvement in earnings, Genghis sees limited upside on the KenolKobil share with a target price of Sh10.80.

The investment bank said based on growth in earnings, sales volumes and profitability plus market leadership, Total retains an upside of up to 18 per cent on its current price. This would give a price target of Sh29.60 per share.