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Ask Geri: OFW Seeks Advice on Flex Fuel Gasoline Station Co-ownership

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27Jun2020 Update: NIk, the email sender, sent us a copy of the presentation slides to provide more details, which we did not have when we first published this article. As these are computations privy to the company, we will no longer discuss in detail the computations. Instead, see comments section for our take on the computations provided. Thanks!

 

Hi Geri,

i’m planning to be [a] co-owner of a gasoline station Flex Fuel which is owned by Luis Manzano. The investment is high, around P990k per seat with a promise of ROI around 3 to 4 years. They only accept 15 seats per gas station including the company share. I’m really interested since I’ve been looking for other investments while working here abroad. Any advice?

– Nik (email inquiry sent via Contact Us page)

Ask Geri: OFW Seeks Advice on Flex Fuel Gasoline Station Co-ownership

Hi Nik,

Thank you for your inquiry. Hope you and your family are safe and healthy in this time of pandemic. It’s also good that while you’re an OFW, you’re already looking for investment options.

First, we are not co-owners of Flex Fuel but we have heard of them as some people who used to work in co-ownerships we previously explored are now connected to them. Likewise, we have not attended any of their business orientations. So as follows is a very limited opinion and assessment from our end, more of how I’ll approach the decisioning on whether to invest in them, and relative to what we have experienced so far in other co-ownerships where we have actual experience and investments.

Yes we have heard of Flex Fuel Petroleum and from what we know, indeed it is owned by Luis Manzano. We have also been invited before to consider them as part of our investments but we did not proceed since (1) the investment amount (~P900K++) is much bigger than our risk appetite, and (2) we’re already exposed in 2 gasoline station co-ownerships, namely PowerFill and Aunicaj Fuel, and for now, we’d rather pursue other options. It doesn’t mean it’s not suitable for you though.

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Capitalization per Station

You mentioned 15 seats, at P990K each. That’s equivalent to P14.85M per gas station. PowerFill capitalization in Isabela is at P7.2M while the Aunicaj Branch in Cavite (inclusive of Rapide) costs around P32M.

So in my mind the Flex Fuel capitalization is in between and will sound more reasonable if it’s located in a more prime location compared to Isabela province. But gasoline station owners and experts might disagree — I’m sure they’ll say you can create your own small gas station for much less, which is true, if that’s what you want, create it from scratch and manage it on your own — with all the legwork, headaches, and all but at least you own it 100% right? But some people are not ready for that yet, and since you’re abroad exploring Flex Fuel, it seems a silent investor type where someone else manages it for you might be more your thing.

Total cost will also depend on the lot size, whether they’ll rent or buy the land, the number of pumps and other plans for the station (e.g. commercial area, car maintenance shop, etc.).

I think it’s a good thing that there are less seats offered (just 15 seats) but we don’t know how it translates to number of shares. But the less seats, the more percentage you own, the better. In our existing exposures, there’s much more number of seats, hence we have smaller share of the income pie.

Ask Geri: OFW Seeks Advice on Flex Fuel Gasoline Station Co-ownership

Other Considerations

Admittedly, being owned by Luis Manzano is a big draw to potential investors. I see him promoting the brand from time to time in his IG account. It adds a lot in terms of marketing the brand, to his followers, to his fellow celebrities etc. This can even help in attracting more customers to the gas stations.

Likewise, it adds a lot in terms of legitimacy, that it’s not some small company that will run away with investors money. Luis won’t definitely risk his life’s work and run away with just for a few millions invested in Flex Fuel.

It doesn’t necessarily mean though that it’s guaranteed to be profitable. At the end of the day it’s still a business subject to risks.

From what I know he also owns part of LBR taxi, so chances are LBR taxis will have a tie-up with Flex Fuel for the fuel needs of their taxi fleet. So that’s guaranteed demand right there.

But the biggest consideration of all is if you’re willing to risk almost P1M with them for the gas station — this will depend on your level of savings, existing investments, and diversification. If you already have other investments in place and you’re seeking to diversify, then this investment you’re interested in deserves a deeper look. Otherwise, if this will break the bank should the investment fail, then maybe you are risking too much and will have to focus on less risky investments, less invested capital for now. Make sure that this P1M won’t be missed in case you have unexpected need of funds, because this is not a liquid investment.

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On The ROI Projections

Remember, even if they want you to become their investor and business partner, at the end of the day, they’re selling a product to you — their gas station. As such, projections tend to be optimistic in these cases. I can no longer recall the ROI projections provided to us when we were still considering PowerFill and Aunicaj, but top of mind, I think it was more of 5 to 7 years.

Based on the income updates we published last month, ROI for PowerFill and Aunicaj will exceed 5 years, more of closer to 10 years and beyond, at least based on historical sales figures. And you also have to consider the time it takes to find a location, the construction of the gas station, etc. So if ever, you should be ready for a longer ROI timeframe. See here for our experience in PowerFill and Aunicaj construction updates.

Remember, ROI means return on investment, so granted that 3-4 years is correct, it just means in 4 years time, you would have recovered the P990K investment, meaning you’re break-even and that income moving forward will be profits. But if you invest the P990K somewhere else, say high yield bonds, then from Day 1 you’re already ROI since your capital is intact and you receive interest income as profits quarterly. Or why not a farm in the province?

Or maybe you already have all of these. Ler’s do some math. (Editor’s Note: This computation was done with only the basic information on-hand based on email sender’s message. After publishing this article, Nik sent us another email with the company presentation, but we no longer reflected it here. See the comments section instead for details.)

  • The 4 years ROI means, in 4 years time, they have profited P14.85-million already to recover the total cost of the gasoline station (in profits, not in gross sales). And all of that income is distributed to co-owners as dividends. No other deductions such as management fee, etc.
  • This is equivalent to P3.712-million in profits per year, or roughly P309K in profits per month.
  • Using Aunicaj’s higher return on gross sales of 4.6% (compared to PowerFill’s 2.3%), gross sales per month should be P6.72-million to enable Flex Fuel to ROI in 4 years of operations. So far PowerFill and Aunicaj are unable to do that, but who knows? It depends on location, demand and sales contracts. It also depends on whether they can achieve a much higher return on sales ratio.

Again, are you willing to wait for that long for your P1M investment to bear fruit? Some people do. Are you?

Are there more profitable investments out there? Yes, there are! No need to rush into making your money work for you. The mere fact that you’re exploring investment options means you’re on the right track.

Well, for our case, despite the projections for Aunicaj and PowerFill, we proceeded to risk a manageable amount because we wanted to diversify. As mentioned in the older articles, we wanted to give it a try. But it doesn’t mean we stopped there. We’re exploring more options now. Will we add to our gasoline station co-ownerships? Not in the near future. For now, our exposures are enough.

Ultimately, you alone can answer this, but I hope I was able to help you somehow.

In closing, before you engage in riskier investments, make sure you have secured other basic investments first. This old article of ours might be able to help: Investing 101.

Good luck on your investment decision. Do update us should you proceed with your investment idea.

God bless us all.

#GrowYourMoney #BeFinanciallyFree #InvestMoneyPH #GYMBFF

*Image from Flex Fuel Facebook page.

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One Response

  1. Geri says:

    Thanks for sharing the orientation slides Nik. I wrongly assumed that the 15 seats will have equal shares with the profit (as I did not know it yet while I was writing this article). From the slides, the 1 seat owned by Flex Fuel will have 1/3 share while the other 14 seats will share the remaining 2/3. Or equivalent to less than 5% per seat. Then it’s more or less the same ownership structure with the two brands we invested in (PF and Aun). So this means you have smaller income share than I initially thought (1/15 share, now it’s more like 1/20).

    The math provided in the original article will have to be slightly changed as well since capitalization is not what I previously thought. But since they already provided their own computation (average of X,000,000 monthly sale, dividend income of x0,000 per seat per month), I will no longer redo what’s above. The average income per seat per month is very enticing indeed but may be over promising. Check their average sales and return on gross sales and see if it’s comparable to other co-ownership brands. Maybe you can also ask around other investors if they have experienced the same level of income. The average sale per month is also high, though probably doable granted that location is ok and the gas station matures. While we never reached that level in Aun (more than double), the Aun branch in Cavite had good trajectory in terms of sales growth prior to covid 19. Despite this, our quarterly income is far from the estimates of Flex.

    Again, since we are not Flex investors, we don’t have a view on how well they perform. These are all relative assessments based on what we know — performance of PF and Aun.

    Goodluck on your decision.

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