FESCO and FONTANA (FTNA) Shone for the Junior Market Distribution Sector

• FESCO and FTNA have reported strong net profit for this earnings season. FESCO reported net profit growth of 189.3% to $281.08Mn for its six months ended September 30, 2022, while FTNA reported an increase of 43.3% to $87.58Mn for its first quarter ended September 30, 2022.
• FESCO’s profitability was supported by the broader economic reopening, which positively affected the transportation sector and higher prices for its products. Additionally, the company continues to benefit from the opening of additional service stations. Meanwhile, seasonality trends such as back-to-school sales would have contributed positively to Fontana’s strong first quarter.
• On another note, both FESCO and FTNA’s cost of sales would have increased by 209.7% and 21.8%, respectively; however, both companies’ margins would remain fairly unchanged. FESCO saw its gross profit margin remain at 3.0%, while FTNA’s declined slightly to 64.2% from 66.2%.
• Going forward, both companies are expected to perform well in the coming quarters. FESCO will continue to invest in real assets and equipment to support the growth of its service station network and its promised entry into the LPG industry. Additionally, Fontana will benefit from seasonality trends, especially as we approach the Christmas season.
• FESCO’s stock price has increased the most since the start of the year, with a price appreciation of 72.66%, while FTNA’s increased by 14.19%. At the current P/E multiplies, both stocks trade above the Junior Market Distribution Sector Average of 15.9x, with FESCO trading at 27.5x, and FTNA trading at 16.7x. 

(Sources: Company Financials & NCBCM Research)