National Gas commenced its liquefied petroleum gas (LPG) bottling operations in 1981 and is currently engaged in the selling of LPG cylinders for retail consumption. In 2012 the company, through an indirect subsidiary, acquired Shell Malaysia’s LPG assets and business in West Malaysia. The company’s largest shareholder is the A’Sharqiya Investment Holding Company, which has a 15% stake in the company. Cylinder pricing in Oman has been a challenge for National Gas, as the regulator has instituted a price ceiling for the local market. For the last several years, this has impacted National Gas profitability significantly, and the company is seeking the relevant ministry’s approval to update the pricing mechanism. The company has taken some steps to reduce costs in an attempt to improve profitability. Some positive developments on cylinder retesting and replacement rules in the third quarter of 2014 will help to bring down cylinder replacement costs in the future and positively contribute to the company’s profitability. In April 2014 National Gas raised capital by means of a rights issue, which increased the number of outstanding shares by 20m and raised OR7.54m ($19.5m). The funds raised from the issue were used to reduce its debt level by repaying some existing loans, in addition to infusing additional capital in an indirect subsidiary company. National Gas benefitted from reduced debt with lower finance charges in the third quarter. In the first nine months of 2014 National Gas reported revenues of OR81m ($209.7m), down by 3% year-on-year (y-o-y); and profits of OR1.75m ($4.53m), which were nearly the same as the previous year. Excluding the impact of certain financial derivatives, group profits increased by 14% y-o-y. The share price return was close to zero in the first nine months of 2014, compared to MSM 30 Index returns of almost 10%. This underperformance is partly due to the rights issue, and partly due to the fact that 2014 followed a bull run in 2013, which saw the stock price increase by 116%. The share price’s strong performance in 2013 was attributable to positive results flowing from the Malaysian business and other joint ventures. After-tax profit also increased in 2013, rising by 239% to OR1.68m ($4.35m).
National Gas has a history of dividend payments to shareholders, at an annual average of 60-80% of earnings over the past several years, with the exception of years when profits were low.
Through its investment in Malaysia, National Gas is exposed to the South-east Asian market, where energy needs are rising as a result of population growth and increasing affordability. National Gas’ company in Malaysia is the second-largest LPG business in the market, and it is expected to continue adding to the group’s bottom line in the coming years.
Management is also hopeful about growing its bulk LPG business in the UAE and its synthetic natural gas projects in the UAE and Saudi Arabia. National Gas is also enhancing its storage and service capabilities in the UAE. Going forward, management’s strategy is to increase shareholder value by organically growing the company’s international businesses and turning its local LPG cylinder business profitable.
At the start of the year management ran into some legal problems. As a result, the CEO had to leave the company and the financial controller became acting CEO. Due to these legal issues, National Gas’ share price declined significantly from its annual high. However, setting aside the management troubles, the company released a couple of positive announcements in 2014 regarding projects that will add reasonable income in future. In January 2014 National Gas was awarded a prestigious LPG project in Saudi Arabia from Qaryan Steel Company. In March 2014 the company was awarded a contract to supply LPG tanks to its clients in Jeddah. In June 2014 National Gas received a contract extension from Daleel Petroleum in Oman for a period of two years. This extension, which came after a six-year relationship between the two companies, will now be effective until the end of July 2016.
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