Unlike new independent power producers (IPP), which fall under the 2002 Power Policy, it is believed that KAPCO and HUBC are in a better position in terms of managing working capital and dividend requirements.
Both these IPPs can delay their payments to the fuel supplier until WAPDA pays them; whereas Nishat Power and Nishat Chunian Power have to pay in advance to get fuel from Shell.
This gives HUBC and KAPCO a cushion to maintain their healthy payouts, said Usman Saeed at AHL. At the closing price of Rs42.5 per share, the KAPCO scrip offers an upside potential of 21 per cent from the target price. Apart from the attractive upside potential the scrip offers highest dividend yield, making it one of the best defensive stocks in the capital market.
On the basis of free cash flows available to the company, KAPCO is expected to pay final dividend of Rs3.5 per share which translates into a full year dividend per share (DPS) of Rs6.5 per share, he said. He added that the DPS for FY12 is expected to be Rs7.1 per share. He also pointed out that this would translate into a strong dividend yield of 15.3 per cent for FY11 and 16.7 per cent for FY12.
With major overhauling of a plant completed in the third quarter of FY11, it is believed that the maintenance cost will remain on the lower side in fourth quarter of the year. Despite receiving a handsome amount from WAPDA company’s receivables will remain higher then its payables. This will lead to higher interest income generation for the company in the fourth quarter of FY11. According to our initial estimates, we expect the company to earn a profit of Rs1.3 billion (EPS of Rs1.56) in the fourth quarter of the FY11 taking the full year earnings up by 30 per cent to Rs6.62 billion (EPS of Rs7.53). The company will pay a final dividend of Rs3.5 per share, he added. So far the company has paid an interim dividend of Rs3 per share.
Circular debt had piled up to Rs258.8 billion by April 2011 as per the Economic Survey of Pakistan. However, the government has reduced it to around Rs122 billion by injecting more than Rs135 billion into the energy sector up till June 2011. Moreover industry sources are also expected to receive another Rs100 billion in the first quarter of FY12 to improve the liquidity of the energy sector. The government has also announced a 57 per cent decline, compared to last year, in the allocation of power subsidies to Rs147 billion in FY12 budget.
This means a gradual increase in power tariff in FY12 to narrow the price gap between power generation and supply. This would help in easing the intensity of circular debt which has been crippling the whole energy sector. By the end of the first nine months of FY11 the company’s trade debts soared to Rs67.4 billion whereas its payables were standing at Rs44.3 billion. On 4 May, 2011 the company reduced its payable by paying Rs29.1 billion to PSO which it received from WAPDA on account of over due receivables.
