Kot Addu Power Company (Kapco) earnings may range between Rs 7.48 billion and Rs 7.52 billion, representing a rise of 8 percent compared with previous year. The country's largest IPP, Kapco, will hold its board meeting on September 6 to announce FY05 annual results.
There are high hopes from the IPP regarding dividend payout, as is evident from the stock's closing at its upper circuit-breaker last Friday, September 2, and another increase on Monday, closing at Rs 44 a share.
"We expect Kapco to announce FY05 net profit in the range of Rs7.48-7.52 billion (EPS Rs 8.50-8.55). This would represent the growth of around 8 percent, versus net profit of Rs 6.94 billion (EPS Rs7.88) earned by the company during FY04," said Khalid Iqbal Siddiqui, head of research at Investcapital Securities.
Kapco had produced around 8,135 GWh during FY05, which was close to 9.5 percent of the country's power generation during FY05.
Profitability growth may be attributed to the fact that around 86 percent of fuel used by Kapco during FY05 was gas. The commercial availability of Kapco's plant remained at a record level of 96.6 percent during the period.
"We expect Kapco to announce a final dividend of Rs 3.50-3.75 per share with its FY05 results. This would take full FY05 dividend to Rs7.00 to Rs 7.25 per share. This would be higher by 8-12 percent when compared to FY04 dividend of Rs 6.50/share."
FY06 would be the last year that Kapco would be paying out another high dividend, as corporate tax would be levied on the company from June 27, 2006. "Thereafter, we expect stable annual dividends in the range of Rs 5.0-5.5/share, fluctuating on the basis of rupee/dollar parity."
Based on its last closing price of Rs 42.80/share, Kapco is offering a YTM of 16.3 percent. "Our fair value for Kapco, based on a risk-free rate of 10 percent and an equity risk premium of 5 percent, stands at Rs45-46/share. Since the stock is trading close to its fair value, we recommend 'Hold' for the scrip for the time being. We would also like to mention that Kapco and Hubco are now offering the same rupee YTM as a result of Kapco's stock hitting its upper circuit breaker in the last trading session.