Africa-Press – Tanzania. STOCK market analysts have said the current TOL Gases shares price is undervalued at 500/- hence opens an opportunity to invest in the chemicals industry which is growing exponentially.
The analysts said TOL, which produces industrial and medical gases, is a good buy at present the shares which sell at discount and projected to reach 1,111/- in the next twelve months.
Tanzania Securities, one of the leading stock brokerage firms, said in its special report for the gases manufacturing firm that it was well-positioned for growth and market penetration of its products in the middle of the coronavirus pandemic.
“We issue a buy recommendation on TOL,” Tanzania Securities said adding: “The undervaluation of the TOL shares represents an opportunity to invest in a growing business in the Tanzanian chemicals industry”. The firm’s report issued a buy recommendation on TOL with a 12-month target price of 1,111/- per share offering an upside of 55.0 per cent with an expected total return of 129.1 per cent from its July closing price of 500/- per share.
TOL produces and supplies industrial and medical gases and medical consumables. The gases produced by the company include compressed carbon dioxide—dry ice, oxygen—industrial and medical— nitrogen, acetylene and argon while gases like nitrous oxide, helium, hydrogen, argon shield and ammonia are imported.
“Nitrogen is by far the most used industrial gas in the country, followed by carbon dioxide and oxygen,” the report said.
The report showed that investment rationale, upside, based on the strong market leader of industrial and medical gas and well-diversified customer base. Other advantages are the installed new Air Separation Unit to replace the aged and oversized Aspen 1000 plant opens opportunities for further growth.
On the investment risks, downside, including uncertainties in the context of global trade and the surrounding regulatory environment remains a concern.
“Indirect exposure to macroeconomic shocks could negatively impact TOL’s Profitability,” Tanzania Securities said adding: “Electricity challenges could also impact the TOL performance of its machines and hence profitability.”
The chemicals industry contribution to the total manufacturing sector is 4.2 per cent which is relatively lower than other industries such as food, beverages and tobacco which contributes 67.4 per cent to the manufacturing sector.
“This is caused by few numbers of companies producing chemicals in the country and especially fewer companies producing industrial and medical gases,” Tanzania Securities said. Comparing to other countries, the Tanzanian industry is still lacking in not only participants, but output as contribution in other countries is well above 5 per cent.
The industry is largely influenced by the growth of sectors such as the manufacturing, construction, and health sectors. TOL has plants in Dar es Salaam, Mwanza and Mbeya and an outlet shop in Arusha plus a distribution network in all regions in the country. Also offers its products to countries within the EAC and SADC region.
“The high barrier of entry and economies of scale works in favour of the TOL and limits the new entrant into the market,” the report said.
