Tuesday, March 27, 2007

Looking back on Kengen & Total

In October last year, Total Oil held a cocktail party to reassure shareholders after some dismal 9 month results.

Now that the 2006 results have been finalized, here are some other things shareholders were told at the event.
- Company experienced difficulty with upfront payment of taxes and ineffectiveness at the oil refinery in Mombasa
- Total had made a provision of 100 million shillings for an oil marketing case, but that very day the high court had ruled in their favor.
- The Chairman (Mr. Nguer) promised that the results at the end of the year would be much better than the 9 month ones
More comparisons to Kenol: he said that Kenol share price was 115 shillings in April and 109 on that day in October, while total had similarly changed from 44 to 37/38. He also said that while their operations were down 9%, Kenol’s were down 30%. [Today March 2007 – Kenol is 85 and Total 30]
- Commenting on Mobil oil exit and entry of Tamoil (of Libya) to Kenya, Nguer remarked that the sector was stable but that oil marketing was unique in Kenya and some multi –nationals could not understand this.
- On threats by Minister of Finance to fix oil prices, he said he did not see the country going back on its 1994 deregulation of the sector prices

The surprise announcement last week that geothermal development company would be hived off from Kengen prompted a look back at the company’s pre-IPO prospectus. And sure enough in the future outlook for the company, the Kengen prospectus does mention the state will set up a geothermal development company to undertake high risk activities such as exploration and drilling. It will be financed by appropriations from parliament and will take over Olkaria from Kengen

Also that:
- Regulator (ERB?) will be empowered to set the price of fossil fuels bought by Kengen i.e. diesel. This is likely to affect independent power producers.
- New rural electrification authority. Any impact on KPLC?
- Kengen to bill KPLC at 2.36 not 1.76 per kWh which has become a hot button issue in this election year


Ken said...

Hmmm, my 2cents.
I think the total chairman is avoiding the real issues here.
By comparing the company's performance with the competition he doesn't address the real issues which is the drop in sales revenue and the huge drop in revenue from operations.
The fact that there is a pile of inventory shows the sales and marketing part of the business isn't really performing. Since there has been an increase in number of vehicles and diesel powered machinery imported I cant understand why this is so.

And what are all those intangible assets it has acquired ?

It doesn't look like a great comany to invest in especially after hearing his excuses.

MainaT said...

Banks-re KenGen-the timing of announcement is not the brightest thing they've done given there is an offload to be done at some point in Q2. For an investor, it will be a good pt to pick up KenGen shares at the IPO price or lower.

Kenyanomics said...

Bankelele and other finance wonks help me here: The public already owns 30% of geothermal assets worth Kshs 4.5 billion. Will the government buy them out, allocate them shares in the new company, or what will happen?

coldtusker said...

Ken - Increase in inventory on a Balance Sheet is not conclusive coz it is a snapshot. A better gauge would have been AVERAGE INVENTORY.

They could have stockpiled for Xmas season, just got a shipment & coupled with higher oil prices so 1,000 litres costs 60% more this year. So no 'real' increase in inventory.

That said I think Kenol is a better managed firm!

bankelele said...

Ken; Total shareholders always ask the chairman while their shares have remained flat while Kenol appreciated tenfold. I wish there were publicly listed oil companies for better comparison

MainaT: I think the 19% should be shelved, given the reaction and current share price.

Kenyanomics: one inv. manager who did not buy Kengen IPO said the comapny had no tangible assets i.e. TARDA and KVDA own the dams that Kengen leases

coldtusker: Kenol does ssem more nimble and has adjusted better to upfront taxes and the open tendering system
PS: CMA answering you in today's nation

we~a~do said...

The one thing I fail to understand is why some people thought (still think) that KenGen is solid on "fundamentals". I hold a contrarian viewpoint. For the discerning reader, the IPO prospectus had so many concealed landmines, nothing has happened to date to change my mind. In any case, the unfolding scenario has reinforced my misgivings. I think the share price will tank to under 10/= soon and do a KQ/Mumias for a long time to come. Total? I don't understand that company anymore, but they are consistently generous with dividends; that's an important factor for some investors.

coldtusker said...

Banks: Tuesday's Nation?

I think the answers were general & really contributed little.

Ntalami & CMA Board need to be asked questions in a public setting!


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