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Hubco may declare 33.5 percent dividend

KARACHI (March 05 2003) : Hub Power Company is expected to declare a dividend of 32 percent to 33.5 percent for the six months ended on December 31, 2002, on Wednesday.

The company last week informed Karachi Stock Exchange (KSE) that its board of directors would meet on Wednesday, March 5, to declare dividend for the six months ended on December 31, 2002, after getting approval from the overseas lenders.

According to a report of Invest Capital Securities, Hubco announced its 1HFY03 (Jul-Dec 2002) financial results on February 6, but investors did not really pay much attention to it, as no interim dividend was expected.

“After having gone through calculations and analysis, we have ascertained that Hubco possesses the ability to pay out a maximum of Rs 3.35 per share, or 33.5 percent, as interim dividend, with a most likely range of Rs 3.20 to Rs 3.35 per share,” the report said.

Free cash flows totally devoted to dividend payment: Calculation of Hubco's free cash flow was made quite easy with the fact that its cash balance as at December 31, 2002 is available.

The only two items that were to be adjusted were Hubco's Rs 3.8 billion financing related payments, in early January, and a restricted cash balance of around Rs 0.3 billion, both of which are evident from its balance sheet.

Since Hubco, as an entity, is not required to retain any cash for reinvestment purposes, all its free cash flows are likely to be paid out to shareholders.

This dividend payment will include the final Rs 1.3 billion payment by Wapda to Hubco, as per the settlement agreement reached between the two parties.

It is quite easy to calculate Hubco's profitability, given the nature of its tariff.

With the company already having earned a net profit of Rs 2.88 billion (EPS Rs 2.49), it is believed that full-year earnings may touch Rs 5.9-6.0 billion (EPS Rs 5.1-5.2).

Since no more bulk payments are expected from Wapda, it is expected that final cash dividend may range between Rs 2.00 and RS 2.25 per share, bringing full-year dividend to around Rs 5.3-5.5 a share.

The next 7-8 years are likely to result in average annual dividend payments of around Rs 4.0-4.5 a share for shareholders.

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