For anyone who’s been low on gas the day before an anticipated fuel price increase is to take place in Addis, the acute shortage of gas stations to service the obvious need in the capital, is glaring. The number of gas stations in the capital has not gone up by an appreciable number in the last 2 decades while the number of cars on the streets and the demand for gas overall (due to increased driving, the Ring Road, etc.) definitely has. What’s more, the multi-national giants that had long buttressed fuel distribution in Ethiopia, have been pulling out of the country (and indeed most of the African continent) one at a time. But if Dalol Oil S.Co. has anything to do with it, this situation may soon change for the better to the delight of many a motorist in the capital but perhaps even more significantly outside of it as well.
Company Background
Dalol Oil is a share company currently under formation launched by 7 investors with an initial capital of ETB 1.4 million. It is seeking to raise an additional 150,000,000 by the first quarter of 2010 and intends to start operations before the end of the same year. Led by Ededeya Assefa, an experienced professional of the fuel production and distribution industry spanning several countries and continents, the company seems to have a strong group of backers including several other industry professionals and business leaders such as Professor Badeg Bekele of the International Leadership Instutite. Since opening 2 months ago, the share offering has raised over 40 million and expects to be able to close its initial offering in the first quarter of 2010 at the latest.
Sector Opportunities.
Ato Ededeya is ( not surprisingly) extremely enthusiastic about the opportunities in the sector. Given his extensive background within it and a compelling, analytical view of the opportunities in front of Dalol, he is confident in pitching what he believes is a strong proposition. One of the more surprising revelations that a prospective buyer of shares from Dalol may hear is that over 70% of the fuel consumed in Ethiopia actually occurs in rural areas and not in the capital which admittedly houses a large majority of its vehicles. Equally telling is the exceptionally low density of gas stations in the nation; Ethiopia – a nation of over 80 million – only has about 500 functional stations while Malaysia (a country in which Ato Ededeya has specific experience in) with a population of 22 million and an area less than one fifth that of Ethiopia’s – has multiple companies that operate over 1000 stations each. The inevitable argument of auto density and development comparisons could be made but still, the difference is quite striking. Of course, it is a virtually indisputable fact that consumption of gasoline will undergo sizable growth here for the foreseeable future. As a matter of fact, fuel consumption growth in Ethiopia has surpassed double digits for the past several years and will probably keep doing so. After all, Ethiopia currently has less than 300,000 vehicles while the city of Los Angeles alone has over 12,000,000. Going beyond the simple statistic of automobile numbers, the sizable activities seen in the construction, agricultural and infrastructural development are some of the more powerful drivers of growth expected to persist for the foreseeable future.
Given a market that is virtually guaranteed to grow significantly well into the future and a shortage of suppliers exacerbated by the continuing exit of international firms that are focusing their distribution operations on more developed countries as well as exploration for new sources of oil, it would seem like the time is ripe for new entrants into the sector. Although NOC and Yetebaberut oil companies are fairly recent arrivals onto the scene, the latter in particular has not seen a great of expansion thus far although, NOC has a much more visible footprint in the capital as well as outside of it. Oil Libya (where Ato Ededeya once worked in Retail Marketing) is also new as a company although it basically took over the distribution network vacated by Shell and has not yet expanded the network . All this adds up to a continuing shortage of distribution outlets that Dalol Oil will be well positioned to address and implement its strategy of leveraging such points of presence to sell products of much higher margin than the tightly regulated fuel sector will allow. Such products will include oil, lube and other consumer goods (not necessarily auto related) as well as value added services such as oil changes, car washes and so forth.
The Share Company Route
If it seems like there are an awful lot of share companies under formation trying to raise funds from individual investors as opposed to institutional ones or through bank or private equity lending, it is a simple function of the current economic status in Ethiopia. Credit markets have been restricted to contain inflation and not many companies or individuals around have the means to finance many of the clear opportunities coming to the fore in this emerging economy. The shortage of capital that is giving rise to this phenomenon is expected to persist for some time and with that the likelihood that many more such share offerings will take place in the future . The central question on the minds of many prospective investors is whether is the credibility of any given one – not just with respect to having the competence to implement their touted business models but indeed whether the existing regulatory framework offers sufficient protection to shareholders in case of fraud. Of course once established, share companies are subject to many of the same regulations that other business entities are. In fact, due to the publicly held nature of share companies, there is a higher level of governance that is required by law such as annual reports to shareholders, independent audits and so forth.
In the period preceding actual formation, prospective shareholders should of course perform due diligence just as they might for any other investment. Some of the steps they can take to protect themselves include visiting the main offices of the share company and speaking to its principals; verifying that their investment funds are to be deposited into blocked accounts pending formation and that such funds can only be released to an appropriately elected Board of Directors. In terms of evaluating the investment opportunity itself, potential buyers should ensure there is a strong and experienced management group behind the share offering and insist on reviewing financial projections for 3 years of operations or more – an all important item that many share companies under formation unfortunately insist on obscuring. Given that such projections are at the heart of determining whether an acceptable return on investment is even possible, it should be inconceivable that an investment is entered into without reviewing them.
Happily, you will find such projections already included in Dalol Oil’s prospectus. And Ato Ededeya regularly receives prospective shareholders at the company’s offices off Ethio China Street (Wollo Sefer) to brief them fully on the opportunities he and his co-promoters saw in launching Dalol. Although there is certainly more the erstwhile investor should look at in deciding whether to invest in Dalol, this would certainly be a good start to a due diligence process that seeks to verify what on the face of it, seems like a sound investment opportunity.
Comments
(2)
Business man written by bereket admasu , March 26, 2010
I have been to one of the presentation sessions that are regularly held at Dalol's Office. We were told that the purpose of such presentations was to enable prospective investors make informed decision in choosing among the multitude of shares that are floating in the country. The presentation was exceptionally outstanding and it took me attending the presentation to do my due diligence. Well, I also had one-on-one conversation with the sales persons including the main promoter himself. I was so impressed that I decided to join them there and then. I found Dalol to be a wonderful opportunity for a portfolio investor who wants to see local resources mobilized and put into action by our own professional and visionary Ethiopians. Thanks Dalol for giving me hope, inspiration and most of all a promising business opportunity.
I invite readers to go and check out the presentation sessions for yourself. No one will regret it, to say the least.
Thanks Horizon for giving a deserved coverage to Dalol!!( the name itself shows how truly Ethiopian this company is)
Cheers
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programmer written by Afework , April 11, 2010
Ur company profit too much low why??? the only 31% dividend. It has a good manager why not 100% profit I am interested to participate but the case is too much less dividend. At least 50% with out takes good.all Ethiopian new share company it is possible 100% dividend,but the problem is one thing thea is good management problem. any way thank u !!!!!!!!!
I invite readers to go and check out the presentation sessions for yourself. No one will regret it, to say the least.
Thanks Horizon for giving a deserved coverage to Dalol!!( the name itself shows how truly Ethiopian this company is)
Cheers