Kenya Power Board of Directors Announces Interim DPS of KES 0.20

By Soko Directory Team / March 1, 2016



kenya-power

Kenya Power & Lighting Company (Kenya Power) released its 1H16 results, recording a 16.4% y-o-y decline in EPS (-34.9% h-o-h) to KES 1.93. The company’s electricity sales were up 10.8% y-o-y to KES 41.7 BN in 1H16, impelled by 5.6% y-oy increase in units sold (less Rural Electrification Program sales) to 3,632 GWh.
Kenya Power’s Board of Directors announced an Interim DPS of KES 0.20.

Key highlights:

Total revenue was down 3.1% y-o-y (-6.7% h-o-h) to KES 53.5 BN, as a result of a 55.4% y-o-y decline in fuel cost adjustment to KES 7.5 BN. Kenya Power’s electricity sales grew by 5.6% y-o-y to 3,632 GWh in 1H16, from 3,439 GWh in 1H15, as power consumption grew in tandem with Kenya’s GDP at circa 1.0x GDP. Intensified measures to increase electricity penetration rate appears to be bearing fruit, evidenced by 10.4% y-o-y increase in domestic consumer consumption to 1,062 GWh in 1H16. Large Commercial & Industrial customer consumption recorded 4.0% y-o-y increase to 2,019 GWh to see this category account for 55.6% in 1H16 (56.5% in 1H15).

The company’s gross profit margin improved by 293bps y-o-y to 32.7% in 1H16, with total electricity purchase costs declining 7.1% y-o-y to KES 36.0 BN. Power purchase costs, excluding fuel and forex costs, increased 24.5% y-oy to KES 25.0 BN, due to additional generation capacity charges by KenGen, Gulf Power and Triumph Power. The additional capacity into the grid saw units purchased increase 4.9% y-o-y to 4,532 GWh in 1H16. Despite an 87.7% y-o-y increase in forex charge due to the depreciation of the KES against the USD, fuel charge declined 52.9% y-o-y to KES 8.1 BN courtesy of a dip in the global oil prices and reduced reliance on thermal plants. Units generated from thermal plants decreased 38.2% y-o-y to 1,006 GWh (22.2% reliance) in 1H16 to see the blended purchase cost/unit decline 24.7% y-o-y to KES 13.00.

We believe the gradual shift to geothermal from the reliance of oil-dependent thermal energy as an emergency power supply, coupled with the global dip in oil prices for thermal energy will see power purchase costs grow modestly in FY16. We however note that system losses continue to be an issue for the company, with the transmitter’s system losses recorded at 19.9% in 1H16 (-53bps y-o-y).

We highlight that for every decrease in system losses by 1.0%, Kenya Power will save approximately KES 900.0m that directly seeps to the bottom line. Other income recorded 18.2% y-o-y growth to KES 3.2 BN, primarily driven by fiber optic lease charges and deferred income. Operating profit declined 12.3% y-o-y to KES 7.6 BN, resulting in the company’s operating profit margin shedding 149bps y-o-y to 14.2%: This was as a result of transmission and distribution costs increasing 24.9% y-o-y to KES 13.1 BN. The increase was mainly as a result of expansion of the company’s electricity network, implementation of system upgrade projects within the “Nairobi Ring” area. Depreciation charges also contributed to the operating expenses increase.

The company’s net finance costs recorded an increase, from KES 1.8 BN to KES 1.9 BN (+4.5% y-o-y). This was attributable to interest income growth (+48.3% y-o-y) outpacing interest expenses (+13.9% y-o-y). In FY15, Kenya Power received USD 25.0m loan from African Finance Corporation (AFC) for system upgrade, meant to enhance its reliability and reduce system losses and the amount is part of USD 150.0m unsecured syndicated loan.

The power transmitter also recently signed a USD 24.0m (KES 2.2bn) contract with ABB Group (a power and automation technology company based in Zurich, Switzerland), for the upgrade of Juja substation in the outskirts of Nairobi. Long term borrowing was up 42.6% y-o-y to KES 96.8BN, while short term debt increased 9.7% y-o-y to KES 15.2 BN. The company’s effective tax rate stood at 34.4% in 1H16, from 34.6% in 1H15 to see the company’s PAT record 16.4% y-o-y decrease to KES 3.8 BN.

Based on the today session’s VWAP (KES 11.40), Kenya Power trades at a trailing P/E of 3.3x and a P/B multiple of 0.6x (ROE of 11.6%) against the Asia/Africa median P/E and P/B multiples of 14.2x and 1.8x (median. ROE of 12.2%), thus providing a significant discount on a P/E basis. While the significant investment in network upgrade remains promising, we remain cautiously optimistic of the company’s near term growth prospects, given the need to create demand for the energy capacity expected to be introduced into the grid. We also would like to highlight that the Energy Regulatory Committee is expected to release End User Tariffs for the next 3 financial years and the revision outcome remains unclear at the moment. We therefore issue a Hold recommendation on Kenya Power.



About Soko Directory Team

Soko Directory is a Financial and Markets digital portal that tracks brands, listed firms on the NSE, SMEs and trend setters in the markets eco-system.Find us on Facebook: facebook.com/SokoDirectory and on Twitter: twitter.com/SokoDirectory

View other posts by Soko Directory Team


More Articles From This Author








Other Related Articles










SOKO DIRECTORY & FINANCIAL GUIDE

ARCHIVES

2019
  • January 2019 (256)
  • February 2019 (216)
  • March 2019 (287)
  • April 2019 (254)
  • May 2019 (220)
  • 2018
  • January 2018 (291)
  • February 2018 (219)
  • March 2018 (278)
  • April 2018 (225)
  • May 2018 (238)
  • June 2018 (178)
  • July 2018 (257)
  • August 2018 (249)
  • September 2018 (256)
  • October 2018 (287)
  • November 2018 (285)
  • December 2018 (187)
  • 2017
  • January 2017 (183)
  • February 2017 (195)
  • March 2017 (207)
  • April 2017 (104)
  • May 2017 (169)
  • June 2017 (206)
  • July 2017 (190)
  • August 2017 (195)
  • September 2017 (186)
  • October 2017 (235)
  • November 2017 (253)
  • December 2017 (266)
  • 2016
  • January 2016 (166)
  • February 2016 (165)
  • March 2016 (190)
  • April 2016 (143)
  • May 2016 (246)
  • June 2016 (183)
  • July 2016 (271)
  • August 2016 (249)
  • September 2016 (234)
  • October 2016 (191)
  • November 2016 (243)
  • December 2016 (153)
  • 2015
  • January 2015 (1)
  • February 2015 (4)
  • March 2015 (166)
  • April 2015 (109)
  • May 2015 (117)
  • June 2015 (121)
  • July 2015 (150)
  • August 2015 (157)
  • September 2015 (189)
  • October 2015 (170)
  • November 2015 (174)
  • December 2015 (208)
  • 2014
  • March 2014 (2)
  • 2013
  • March 2013 (10)
  • June 2013 (1)
  • 2012
  • March 2012 (7)
  • April 2012 (15)
  • May 2012 (1)
  • July 2012 (1)
  • August 2012 (4)
  • October 2012 (2)
  • November 2012 (2)
  • December 2012 (1)
  • 2011
    2010
    2009
    2008
    2007
    2006
    2005
    2004
    2003
    2002
    2001
    2000
    1999
    1998
    1997
    1996
    1995
    1994
    1993
    1992
    1991
    1990
    1989
    1988
    1987
    1986
    1985
    1984
    1983
    1982
    1981
    1980
    1979
    1978
    1977
    1976
    1975
    1974
    1973
    1972
    1971
    1970
    1969
    1968
    1967
    1966
    1965
    1964
    1963
    1962
    1961
    1960
    1959
    1958
    1957
    1956
    1955
    1954
    1953
    1952
    1951
    1950