The oil price slump that took place recently seems to be on everyone?s mind. There would undoubtedly be companies hurt by it, but just as one man?s meat is another?s poison, there are companies which stand to benefit. Here are three companies with such potential.
The best airline in the world
Singapore Airlines Ltd. (SGX: C6L) is considered to be one of the best managed airlines in the world. Yet, for the past three years, its net profit margin has been hovering around a measly 1% to 2%.
Fuel is the largest cost for the airline, contributing close to 50% of its cost…
The oil price slump that took place recently seems to be on everyone’s mind. There would undoubtedly be companies hurt by it, but just as one man’s meat is another’s poison, there are companies which stand to benefit. Here are three companies with such potential.
The best airline in the world
Fuel is the largest cost for the airline, contributing close to 50% of its cost of goods sold. Over the last twelve months, Singapore Airlines has incurred some S$5.6 billion worth of fuel expenses. With the price of oil down close to 50% from its peak this year, we can expect Singapore Airlines to enjoy a windfall for a period of time.
The airline’s share price has gained roughly 10% to S$11.50 since the end of November, possibly in response to potentially better operating conditions going forward. You can find out more about Singapore Airlines in here and here.
Travelling to greatness
ComfortDelGro Corporation Limited (SGX: C52) is a global land transportation company. With about 50% of its revenue coming from the provision of bus services, the current drop in the price of oil might translate to better margins for the company going forward as its buses can spend lesser on power; ComfortDelGro had incurred S$328 million in fuel and electricity costs over the last 12 months (that translates to roughly 10% of the firm’s cost of goods sold for the same duration).
Although ComfortDelGro’s savings might not be as significant when compared to Singapore Airlines, the fall in the price of oil is nonetheless going to benefit the former. You can find more analysis on ComfortDelGro in here and here.
Sailing to new frontiers
Neptune Orient Lines Limited (SGX: N03), being a major ocean liner, has to logically spend a significant part of its costs on bunker fuel. Unfortunately the company does not breakdown how much it actually spends, so we will not be able to have a clearer picture on how beneficial lower oil prices might be for the firm’s cost structure.
But in any case, as Neptune Orient Lines begins to enter into new bunker swap agreements with lower oil prices, investors should likely start to see the benefits the company can enjoy from lower fuel prices. This might even be some sort of blessing for the company as it has been struggling to turnaround its years of losses.
The market might be jittery about slumping oil prices, but as we have seen, lower oil prices might not be all that bad for all companies.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.