By Anthony Morgan

Predictions about an early closure of Future Energy Source Company Limited’s (FESCO’s) Initial Public Offering have been realized. The IPO closed on April 1, 2021 just a day after opening.

It was originally scheduled to close on April 9. However THE ANALYSTS on the latest episode of Taking Stock with Kalilah Reynolds were among those anticipating the offer to be another open and shut case.

FESCO’s updated prospectus was released recently after the initial document was pulled a month ago due to an accounting omission in the company’s projected financials.

The petroleum marketing company was seeking to raise $400 million from stock market investors in exchange for a 20% stake in the company.

Business Writer at Jamaica Observer, David Rose.

500 million shares were on offer, priced at $0.80 each. Shares were split between newly issued shares in FESCO and existing shares for sale by the five founding directors, Trevor Barnes, Hugh Coore, Lynden ‘Trevor’ Heaven, Errol McGaw and Junior Williams, as well as another shareholder, Neville Allen.

Business Writer at the Jamaica Observer, David Rose, said the short timeline for the offer was an indication it could have closed early, especially with only 35 per cent or 175 million shares reserved for the public.

“Tropical Battery was also limited to one week and it opened and closed the same day and listed the following week. The fact that just about $175 million was open to the public in terms of shares, meant it could be oversubscribed quickly and remember NCB Capital had a reserved pool as well,” reasoned Rose.

Meanwhile, Investment Analyst at PROVEN Wealth, Julian Morrison, said the company’s share price could have lured investors to the offer. 

Investment Analyst at PROVEN Wealth, Julian Morrison

“We realize that our investors are big on pricing and the fact of the matter is whenever a stock is typically at that level it tends to get a high level of uptake,” said Morrison.

“Based on market movements there’s a high level of demand, very high level of liquidity in terms of people waiting for deals to come to the market, things that were postponed from last year etc.,” he added.

Morrison said FESCO also came in at an advantage with its IPO, having NCB Capital as the lead broker of the offer.

“NCB Capital Markets has a very strong infrastructure in terms of bringing deals to the market so [bearing that in mind] the uptake should be notable,” he reasoned.

“The company’s numbers are decent although profit margins remain thin, but there are different strokes for different folks. There are still some people who are willing to take that risk and jump in,” he added.

In the meantime, Morrison said a FESCO listing will be an opportunity for people to be further exposed to the energy sector which has been fairly represented on the Jamaica Stock Exchange.

“People can invest in the limited JPS preference stock, there’s Wigton, MPC, but it’s good to have another energy offering on the market for diversification purposes,” he said.

Of the $400 million now raised from the IPO, $160 million will go directly to the selling shareholders. 

The remainder will be used by Fesco to pursue strategic investment opportunities and reduce debt.

What about electric vehicles?

As for the future of the company, Morrison said going forward, it will also be interesting to see how the company positions itself to meet market needs, with major vehicle manufacturers transitioning to electric vehicles.

“Is it that FESCO will be retooling its infrastructure to fuel these cars going forward?” he asked, adding that it might not be an easy exercise with the limited time they might have to do so.

“Many times we think these things are far out into the future but several large manufacturers like Toyota, VW group, even Land Rover have made plans to switch to EV by 2025 so that timeline is fairly short for a retooling exercise so we have to look at that in terms of the future prospects,” said Morrison.

FESCO, however, remains bullish on its growth plans.

Up to December 2020, FESCO recorded $4.3 billion in revenue and $70.9 million in profits. Total assets stood at $532.9 million.

It’s projecting to end FY2021 with $132.4 million in net profit and $993.8 million in assets. By 2025 it is anticipating net profit will increase to $429.7 million and total assets to just over $2 billion.

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