Monday, May 29, 2006

Is KPLC the next big thing at NSE?

Is KPLC the next big thing at NSE?
I got this feeling that KPLC is the next big thin at the bourse: its likely to double money for investors in 12 months. My reasons are simple.
First, there is a dire shortage of counters on which one can now put their money. Bank stocks are generally to be avoided and so are Merali associated companies for reasons discussed recently on banakelele's blog. As such the high liquidity in the market after the kengen refund will find its way to the counter.
Second, the appoinment of a canadian firm to run the company will bring in professionalism the entity and bring down system loses which eat up almost 20% of the production.
Third, the growth in the economy has compounded the demand for power across all sectors, with better management, the copmany is likely to grow revenues by over 10% annually in the medium term.
Fourth, KPLC paid dividends last year surprising many anyalysts who expected them to conserve cash for internal use. by so doing they set a dividend trend which they must keep this year. thios will work well towards price appreciation since this is a largely dividend driven market.

8 Comments:

Anonymous VItuVingiSana said...

There are challenges that KPLC faces but professionalism will definitely do wonders esp if there is political non-interference. I wonder how the government will keep its paws out of KPLC affairs?

There is strong demand for electricity BUT the price is regulated & the next PPA (Power Purchase Agreement) will be lopsided to favor the newly listed KenGen i.e. squeeze the guy in the middle i.e. KPLC.

The new pre-paid system should be introduced pronto to cut on bad debts. Has KPLC provided for all the necessary bad debts?

There is the question of preferred dividends which will be a huge drag on KPLC's "Profits attributable to KPLC's ordinary shareholders"

If KPLC fires on all cylinders then YES, it is worth looking into!

7:12 AM  
Blogger gathinga said...

i dont think thwy have provided for the old bad debts. but were they to stop creating more of these, by way of professionalism and also the prepaid thing, then this would be more productive than even the provisions.


by the way, vitu:
whats your take on EAPC. With respect to their Yen denominated loan and also the plans to double the intalled capacity?

1:53 PM  
Anonymous VItuVingiSana said...

EAPC,

First, the Yen loan is NOT a burden coz (a) they can service it (b) KShs is STRONG so they have lower payments to make. (c) EAPCC wants to repay the Japanese debt BUT the Japanese do not want the loan repaid yet!

Second, Installed capacity. (a) The existing plant is old & needs to be replaced so they need the extra capacity which will not be "extra" as the old plant is retired.
(b) New plant will lower costs thus sales will increase vis-a-vis Bamburi.
(c) Econ growth needs cement for roads, buildings, etc thus they will need this capacity
(d) Exports to Rwanda & Sudan

If EAPCC doesn't expand now they will start dying a slow but painful death!

3:06 PM  
Blogger gathinga said...

am told they acquired a subsidiary in Rwanda. This may perhaps help their turnover growth

1:43 PM  
Anonymous VItuVingiSana said...

They acquired a substantial stake (49%?)is a Rwandan cement firm to enhance their market share. Kenyan cement goes all the way to Rwanda!

4:58 PM  
Anonymous Ntwiga said...

Interesting analysis that I agree with to a very large part. I will weigh in on this if I may . . .

I have always thought that KPLC as a long term purchase (get the eventual dividends) rather than a short term purchase (make a killing buy turning over a large block of shares) simply because it will be a while before they will be able to operate autonomously (read without government interference). I have alwaysthought that the spin off of KenGen from KPLC was based on the combination of three simple facts:

- demand for electicity outstrips supply in Kenya
- electricity is a "political" product
- KPLC has always been heavily loaded with debt due to the cost of financing the installation of generating capacity

By seperating KenGen from KPLC (ie separating generation from distribution), the Government was able to sell off part of its ownership in KPLC, pay off some debt and still mantain control of this political product (think about all that rural electrification money from Japan & the EU, which politician does not want to be doling that out come elections time?). All this was quite a slick move. So, as long as KPLC is government controlled, investors are guranteed that it will not go under (the public will fund its debt) and if it makes money, then the dividends are going to be pretty good which are some of the earmarks of a blue chip stock.

My take on all this? Buy KPLC if you are in it for the long haul. Even if some speculation takes place in the near future and some make a killing on quick turn around (which will almost certainly happen in the near term), most punters will take a beating since the price will eventually come down and stabilize at current levels if the government is still the large part of the equation that it is now.

3:23 AM  
Blogger gathinga said...

good insight ntwiga, thanks

1:18 PM  
Blogger Ken said...

This is a great blog Gathinga. I you can bet Iwill be a regular here.
I have always thought utility stocks would be the way to go especially when the companies are not too dependent on government. With new management and pre paid system coming up I think I will try and hold some.

I would be nice to see your take on more stocks in the market.

5:31 AM  

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