Oversubscription on opening day forces early closure

The initial public offer (IPO) of shares in petroleum marketing company, Future Energy Source Company Limited (FESCO) has been closed earlier than projected due to a massive oversubscription of shares.

The IPO, which opened Wednesday (March 31), closed a day later yesterday approximately 5:00 p.m. The transaction was oversubscribed and as such the company exercised its right to close the IPO early.

The basis of allocation will be outlined to the Jamaica Stock Exchange in a subsequent communication. NCB Capital Markets, which was the lead broker and arranger of the IPO, and its client, FESCO, thanked the investors for their overwhelming support of the IPO.

The $400-million IPO of shares in FESCO came back on the equities market after a one-month hold-up. The IPO was priced at $0.80 per share and was scheduled to close on April 9.

Some 500 million shares, representing a 20 per cent stake in the service stations operator went on offer for sale. The proceeds from the IPO will be used to support the growth of the existing businesses of FESCO, allow it to pursue strategic investment opportunities as well as pay the expenses of the IPO.

The proceeds from the 200 million shares being sold by six shareholders will amount to $160 million, accruing to the benefit of them and not to the company. The proceeds from the remaining 300 million shares, which are being sold as newly issued ordinary shares, amounting to $260 million, will go directly to the company.

It is the intention of FESCO to apply to the JSE for admission of the IPO shares to be listed on the Junior Market of the JSE as soon as is conveniently possible following the allocation of shares. FESCO was incorporated and registered on February 4, 2013.

Financial performance

Gross profit is expected to increase by 24 per cent to $221.8 million in 2021, up from $178.3 million in 2020. This is expected to grow even further to $670.9 million by 2025. Pre-tax profit is expected to increase by a Compound Annual Growth Rate (CAGR) of 29.8 per cent during the projected period, moving from $151.31 million in 2021 to $429.65 million by 2025.

This is primarily due to the projected growth in revenues of 16.4 per cent (CAGR) and expansion of gross profit margins to 5.33 per cent during the period. FESCO will be well positioned to execute on one of its strategic plans for expansion in the local market as it seeks to take advantage among independent owners of service stations with their fuel distributors.

Capital expenditure for the period is expected to be significant at approximately $750-$850 million, as FESCO executes development and acquisition of its COCO Service Stations and cooking gas/ LPG assets. Revenues or turnover over this period has increased from $3.754 billion (2016) to $5.936 billion (2020), which represents a CAGR of 12.1 per cent.

Over the years, FESCO has been able to grow its revenue by expanding sales at its locations, expanding its distribution network by adding dealer-owned FESCO branded locations and increasing its supply to commercial/industrial private supply firms. FESCO has been able to increase its gross profits margin to its dealers as its brands become more recognised and demanded by customers (0.75 per cent in 2016 to 3.0 per cent in 2020).

In addition to margin increases, FESCO has successfully sought to improve its volume of litres of fuels sold.