KAPCO declares 45 percent final dividend

KARACHI (September 08 2005): Earnings of Kot Addu Power Company posted a growth of 16 percent in the year ended June 30, 2005 and declared a final cash dividend of 4.5 rupees a share or 45 percent.

During the year the company's profit totalled at Rs 8.048 billion or 9.14 rupees a share, up from Rs 6.93 billion or 7.88 rupees a year earlier. While profit for the 4th quarter showed 4 percent increase.

Final dividend of 4.5 rupees per share makes full year dividend to 8.0 rupees per share or 80 percent, 23 percent higher than that of last year.

Kapco's profits shall become taxable from FY07, which shall dampen its dividend stream. However, the impact shall be diluted by a likely reduction in principal repayment, implicit in the company's debt profile.

Post FY06, annual principal repayment to fall by more than 50 percent from about Rs 2.2 billion in FY05. Further helped by CPI and PKR/USD indexation factors, the reduction in dividend shall be about 25 percent in FY07 from the preceding year, said a report of Invisor Securities.

The stock has recently seen strong price run and is current trading at a dividend IRR of about 14.5 percent over the remaining PPA term until 2021. With strong financial position, growing power demand in the country and large Wapda ownership, we believe that Kapco, like Hubco, is also well placed for expansion.

In our assessment, Kapco's FY05 profitability growth is driven by a combination of higher base tariff, indexation factor and efficiency gains from increased capacity utilisation.

As in the case of other IPPs, Kapco's tariff is also indexed to PKR/USD exchange rate and US CPI growth. Moreover, as was explained by Kapco's management in the pre-IPO analyst briefing, the company has been assured consistent gas supply, which enables it to achieve higher thermal efficiency rates.

As reflected from sales figures, Kapco seems to have run at significantly higher plant dispatch level than last year. The report said that the strong growth in power demand is already resulting in power shortages, creating quick need for new capacities.

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