The Tribune

By NEIL HARTNELL

and YOURI KEMP

Tribune Business Reporters

A Bahamian propane gas (LPG) dealer yesterday said “the stars are aligning” as it seeks up to $3m from Bahamian investors to finance its ambitious growth strategy throughout the country.

Mark Newell, Nassau Gas & Tanks principal, told Tribune Business the company’s offering of up to one-third of its value via the ArawakX crowdfunding platform is coinciding with the easing of cost pressures that have strained both himself and rivals throughout the COVID pandemic.

Disclosing that the company’s annual revenues are down 50 percent compared to their $5.9m record, after the market squeeze forced a suspension of wholesale supplies to other providers, he added that raising the maximum $3m will produce “an immediate 30 percent” top-line growth of around $1m per annum - a number he described as “conservative”.

“We want to get back to the good old days,” Mr Newell told this newspaper, pointing out that unlike a start-up, Nassau Gas & Tanks has been in business since 2004 having built up a retail client base that is split 50/50 between residential and commercial customers. The latter includes the likes of hotels, restaurants and laundromats.

With demand for LPG unlikely to moderate, he added that the proceeds from a maximum capital raise will be invested in a new warehouse facility to properly store tanks; increased tank inventory so that all sizes are covered; extra delivery trucks; satellite depots in the Family Islands; and advanced purchases of LPG while prices are low so that “predictable margins” can be locked in for several years.

Due to government-imposed price controls, the LPG industry is a battle for volume and market share between dealers. “Propane has come down significantly since June. It’s plunged since then, and hopefully that continues,” Mr Newell said. “If that’s the case, we can lock in on a cheaper rate and have two years of lower cost gas.

“The last three years have been very challenging, but now we can see the light with the supply chain loosening, so by the first quarter of 2023 we can hit it. We’ve done no advertising, so it’s great to create a buzz after 18 years. It’s just been word-of-mouth and we’ve grown quickly.”

Besides the drop in global LPG prices, Mr Newell said other factors that have combined well with the timing of Nassau Gas & Tanks’ capital raise include the Government’s decision to slash import tariffs on gas tanks from 45 percent to 25 percent. This will boost cash flow by reducing the company’s upfront outlay on new tanks as it bids to restock both itself and its customers with fresh supplies following COVID.

“People can’t get a gas tank and are having them stolen. It’s like the Wild West right now,” Mr Newell said. “Ten out of 12 [tank sizes] are out of stock. We want to replenish that inventory from the last couple of years when we couldn’t get stock and that’s been depleted.”

Describing the LPG industry as “very capital intensive”, he added that he had “taken my foot off the gas” during the tough trading conditions of the past two-three years which forced an end to Nassau Gas & Tanks wholesale business and a concentration solely on retail clients so that it could sell at full price.

Identifying Shell and Caribbean Gas as its main competitors on the wholesale/import side, Nassau Gas & Tanks’ pitch book to investors said: “LPG pricing is government-controlled and, currently, there is a ceiling of $3.90 per gallon inclusive of VAT.

“Our costs as dealers, not just locally, but all companies worldwide have steadily increased over the years. We previously supplied sub-dealers and peddlers with gas, but as the cost went up, we stopped doing that to only sell at the full rate, 100 percent of our sales volume.

“At the height of our sales, we generated $5.9m a year in revenues. But with the suspension of selling fuel at a discount, we are half that now. We wish to maximise our profits and revenue while operating in a high-cost environment. We hope to get a much-needed price increase very soon however from the Government.”

Revealing that he plans to pay a quarterly dividend to shareholders, Mr Newell told this newspaper that the company is also debt-free. “We have always maintained yearly revenues in the $5m-6m range for the first 11-12 years, but with the increased costs, we stopped selling gas to fellow dealers and focused on selling at the full allowable selling price,” Nassau Gas & Tanks reiterated to investors.

“We land propane gas at the moment for $2.90 per gallon and sell for $3.90 per gallon. This sounds like a lot, but we have to deliver the product in big expensive delivery trucks. This takes manpower, equipment, insurance and diesel. All costs have gone up....

“The company has a post-money valuation of $9m.... We are offering 30 percent of the company for $3m. Caribbean Gas was valued at $10m to $12m privately when shares were previously traded privately.”

Mr Newell said: “It’s a very capital-intensive business. We want to upgrade the whole fleet of trucks. We want to get lots of inventory. We want to venture out to the Family Islands because it’s tough. The other islands, they have to send tanks on a mailboat, so sometimes they’re out of gas for a couple of weeks. So we want to do little mini-depots all around The Bahamas.” 

The company is targeting Eleuthera, Exuma, Andros and Long Island for expansion first because “they are struggling with these mailboats”. Mr Newell added: “We want to save them doing that and say we will pick up your tank from a location down the road.

“So there’s a lot of upside, but I know the population isn’t big on these islands so it has to be cost effective. Obviously we’re not going to do a huge gas plant like we have here, but on a scale basis and case by case basis, and where the population is.” 

“Fortunately for everybody [propane] has come down a lot, like 20 percent. But we were operating on a fixed selling price as propane gas companies; we’re a unique bunch. We’re not like the gasoline stations, where they have the fixed margin; we have the fixed selling price. But if the costs go up, which it did do, we’ve gotten squeezed.

“Literally every house uses propane. Most businesses use it, restaurants, hotels, and there is a lot of upside. It would be nice to come along for the ride. Coming out of this pandemic, we think it’s good timing. I see next year being a boom year because not just the gas business, all industries, supply chains are going to be fine.” 

Nassau Gas & Tanks is priced at $11 a share with a minimum investment of $110 stipulated. The offering, which will close on Christmas Eve after 90 days, will offer 273,000 shares in total to investors.