Stock brokerage Genghis Capital has issued a 'buy' recommendation for two oil marketers on expected higher petroleum sales, development of niche products and their turn-around strategies.
In an initiation of coverage on the oil and gas sector released on Friday, the stockbroker said KenolKobil and Total Kenya have a potential to rise by 29.1 per cent and 31.3 per cent respectively on their Thursday price levels.
It set a target price of Sh10.91 for KenolKobil and Sh23.96 for Total Kenya. The two oil marketers on Thursday closed at Sh8.45 and Sh16.30 respectively.
"In the aftermath of a politically fragile environment, we expect petroleum sales to return to normalcy. Vessel delays at the port of Mombasa have been substantially reduced, enhancing inventory management capabilities of bulk distributors," Genghis said.
It said a more stable dollar/shilling pair "subject to closer MPC (Monetary Policy Committee) supervision and CBK (Central Bank) interventions", is expected to reduce forex-related risks which had slashed oil marketers' profits. KenolKobil post a Sh6.2 billion loss in the past fiscal year.
The stockbroker said developing high margin niche markets like Liquid Petroleum Gas and bitumen presents opportunities for oil marketers to diversify earnings.
"Total Kenya has already targeted this segment with the establishment of two bulk storage facilities, increasing its capacity from 150 tonnes to 300 tonnes," Genghis said.
The recent boost to Total's capital base, the firm said, should support downstream infrastructure plans.
"The preference stock issued to the holding company Total Outre Mer of Sh5.2 billion should ease the pressure on working capital requirements."
KenolKobil on the other hand has just emerged from the red, posting Sh147 million in half-year net profit from a Sh3.9 billion loss in a similar period last year.
The oil marketer started re-engineering and restructuring its business to cut costs and turn-around its performance after a failed take-over bid by Puma Energy, which took a heavy toll on the firm. Immediate former chairman and CEO Jacob Segman emerged a major casualty of the process.
The firm made a sharp reduction in new purchases in the six-month period, with the cost of sales dropping by 38.3 per cent to Sh62.93 billion compared to Sh102 billion in a similar period last year.
It is however wary of exchange rate fluctuations, which cost it Sh158 million in the period under review, though "within expectations."
"The exchange rate remains an exposure and an area of concern," David Ohana, KenolKobil's managing director said in a statement.
The shilling traded at a mean of 87.53 against the dollar on Friday. KenolKobil has moved 1.97 million shares at the NSE by 1434hrs on Friday, with its stock jumping 5.92 per cent to Sh8.95.