FESCO’s Bottom-Line Rises on Lower Costs

• For the year ended March 31, 2021, Future Energy Source Company Limited (FESCO) reported unaudited net profit of J$109.06Mn, a 4.1% increase over the 2019-20 financial year.
• Direct Cost, which was 1.67% (or J$96.07Mn) lower than last year, was the major driver of the improvement. FESCO’s performance comes against the background of a decline in the transportation fuel industry. The volume of litres of fuel sold contracted by 13.5% through the period April 2020 to January 2021, while FESCO’s grew by 10.6%.
• However, the improvement in net profit was tempered by an $82.82Mn (or 1.4%) yoy decline in revenues. Several factors affect revenue with the price at which the company sources fuel being a major component. FESCO has no control over the supply price of fuel and as such is a price taker. It instead, focuses more on volumes sold and maximizing gross margins. Its financial year ended March 2021 would have captured the full brunt of the pandemic when heightened mobility restrictions, remote work and curfew orders affected demand for fuel.
• Following its successful IPO and listing on the Junior Market in April 2021, the company will start benefiting from reduced (zero rated) corporate taxes in its new financial year that will end in March 2022. Additionally, as the local economy recovers, global travel accelerates, business confidence improves and as new service stations are added on Ferry and Beechwood Avenue in the next quarter, FESCO’s profitability is expected to improve.
• The stock has appreciated by 32.5% to $1.06 since it began trading at $0.80 on April 22, 2021. It now trades at a  P/E ratio of 26.5x earnings, which is below the Junior Market Distribution sector average of 34.0x earnings.

(Source: Company Financials)