Wazua
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Time to play the Market......2024
Rank: Member Joined: 9/26/2006 Posts: 410 Location: CENTRAL PROVINCE
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stocksmaster wrote:stocksmaster wrote:watesh wrote:watesh wrote:watesh wrote:Let me join in and share mine
Key Play For 2024
Kenya Power
The stock that everyone loves to hate.
FY23 EPS: (1.64)
Current Share Price: 1.6
P/E rato: NIL
Dividend pay out ratio: NIL
Tail winds
1.New tariffs – Average charge per unit will be up by at least 40% (consumption charge excluding FCC,FERFA,IA etc) this goes directly to KPLC. Margins doubled at half year as compared to the 2022 election tariff. 2nd half % growth will be lower since new tariffs commenced on April.
2. EPRA approved recovery of 6.5bn for tariff cut extension. Half of it will be in FY24 so that’s an extra 3.2bn
3. Heavy recovery of forex charges – In FY23 there was a 5bn charge in the cost of sales related to unrealized forex costs that wasn’t recovered due to lack of dollars for payment. KP had to eat up the cost. Currently in FY24, H2 forex recoveries as of April are already 40% higher than H1 indicating heavy recoveries in H2.
4. $/Ksh rate – If by June 30th the rate of dollar to ksh sticks to 140 and below, there will be very little unrealized for losses for the year. Assuming costs don’t skyrocket and gross profit at H2 is similar to H1, EPS should be approx 5 when rate is at 150, 3 when at 160 and sinks into losses past 170.
5. Cashflows – For the past 2 financial years KP has had really amazing cashflows. Now sitting at almost 20bn as at Dec 2023. I expect at least 2bn in interest income
6. Transfer of assets to Ketraco – KP CEO & CFO revealed they rarely revalue their assets eg land. Hence valuations are very highly muted. The transfer wipes out 80bn in debt. Commercial debt stands at 36bn. I wonder if this will trigger a forex loss recovery that has accumulated to over ksh20bn. Either way less interest charges and unrealized forex loss charge.
7. Good rains – From November to date, the more margin rich hydro power is being dispatched over thermal. There is more curtailment of wind & geothermal in favor of hydro. Wind is low margin.
8. Debt recovery – Defaults are over 35bn and there was a provisions charge of 2bn. A tender was issued in Feb for this. Each billion counts in the bottom line.
9. New management – New board, new ceo, more minority shareholder representation. The stalemate is over and things can get moving.
10. Presidential directive – All commercial state corporations should provide 80% of profit after tax for payment of dividend. It’s a long shot but if KP even issues something small, share price will skyrocket. CFO revealed the new board was asking him to budget something for minority shareholders.
11. No major power plant – No jump in capacity charges which are KP’s biggest COS charge.
12. IMF is watching like a hawk
Headwinds
1.ksh – each drop means added costs
2. Loans repayments – Biggest consumer of cash. Moratorium from govt is expiring
3. Government – Any directive can sink the ship
4. Procurement theft – This is where the biggest leakage is. Major projects = major theft. Currently, we have meters and more last mile.
5. Capital gains tax – Transferring assets to Ketraco may trigger a huge capital gains tax.
6. Negative working capital - its shrinking but just doesn't look good on the company.
7. New debt from world bank $300m interest free. It will ease cashflow pains but more unrealized forex losses again.
My target price is 3+ by June 2025 but this is highly dependent on the performance of the ksh. I will jump ship past 170. My current cost basis is 1.55, a price it has stuck to since the onset of the pandemic. So the downside risk is kind of muted. Not planning to hold long term because power utility growth is just 3 - 5% annually
Please criticize my overly optimistic view.
Small update on this: 30th June (date of financial year end). Shilling closed at 130 which means some of the unrealized foreign exchange losses incurred in H1 have been reversed (H1 opened at 140 and closed at 156 as of Dec 31st). Out of the 15 billion charge, around 3bn should be interest charge and others. Without that unrealized forex charge, H1 PBT should be in the range of 10 - 12.5bn. H2 forex charge recoveries were cumulatively approx 60% higher than h1 despite the appreciation of the ksh and heavy rains in Nov, Dec, March, April and May. The extra 10bob appreciation of the ksh means Kenya Power has some unrealized forex gains. However, assuming they book it as a below the line item hence doesn't affect the PBT, I expect PBT for the full year to hit 20 - 25bn (I have also assumed H1 performance is = to H2). Hence PAT of ksh14 - ksh17.5 and EPS of approx 7 - 8.75 for FY24. See you at end of October. End of October is here. Profit after tax surged to KES 30.08B, a substantial recovery from the previous year’s loss of KES 3.2B, driven by 21% revenue growth and lower finance costs. ⚡️ Electricity sales rose 21% to KES 231.12B, boosted by 447,251 new customer connections and manufacturing growth. 💹 Stronger Shilling in the second half limited cost of sales increases, resulting in a higher gross margin relative to revenue growth. 📊 New cost-reflective tariff in April 2023 supported sales growth. 💰 Finance costs dropped by KES 24.84B, with a KES 7.88B foreign exchange gain from Shilling appreciation against the USD and Euro. ⚙️ Power purchase costs increased to KES 150.61B due to higher demand and earlier high exchange rates. 💼 Operating expenses rose to KES 46.28B due to 92% higher wheeling charges and additional technical staff. 📜 Staff costs impacted by 2023 Finance Act and inflation, managed through zero-based budgeting. 🔄 Working capital improved from negative KES 74.85B (FY 2019-2020) to negative KES 27.44B. 💸 Proposed dividend of KES 0.70 per share, payable 31 Jan 2025. So my target exit price will be calculated using a P/E of 1 - 1.5. So with than an EPS of 15, my minimum share price is 15. Otherwise, I can hold with a starting dividend yield of 46%. There is a likelihood of an interim dividend in March. Free Cashflows should drastically improve once all power producer arreas are cleared. Debt payments should also be lower since commercial debt obligations are much lower. Short term, the market seems to prefer valuation based on dividend yield. Using the Tbills as a benchmark (since the KPLC and KenGen shares are most likely competing for investment money with these fixed income instruments),the prevailing rates for 91,183 and 364 days instruments are approximately 14%, 14.5% and 15% respectively. That means the short term price target for KPLC using the average of 14.5% yield at a dividend of Ksh 0.70 is Ksh 4.82 hence most likely a trading range of 4.65-5.00 (for a 14-15% dividend yield). For KenGen, applying same parameters of a trading range of 14-15% dividend yield gives a range of Ksh 4.35-4.65 (Median of Ksh 4.50). Thus, at current prices, KenGen seems to have the more upside potential for short term play (a 10-15% short term upside potential before books closure). Long term, KPLC has much higher potential as the realistic price should be in the Ksh 10-15 region once they wipe out the negative working capital in the next one year and are thus able to improve drastically on the dividends. Happy Hunting Looks like KenGen will have a very good 2024-2025 financial year with Ksh 4.14bn sale in carbon credits to be booked in Jan 2025......that's about 2/3rds of this year's total net earnings being generated from that single transaction. https://www.businessdail...n-credits-sales-4822446
Diamond Trust Bank also looks like it's going to report some muscular Q3 performance based on the DTB Tanzania Q3 results. As the largest Kenyan bank in TZ (both in Assets and Profits), it reported a 331% net earnings with a net profit of Ksh 1.9bn (equivalent to about Ksh 6.80 EPS from just the TZ unit for Q3). https://x.com/TheAbojani...-TaIl6iaf6HQ-w&s=19
My third short term pick (6 months horizon) is Umeme. Their 20 year power concession ends in Feb 2025 (3 months time) with a buyout by the Uganda Govt projected at about USD 255M (about KSh 20.50 per share). Add a final dividend of about Ksh 2-3, and that's a value of about Ksh 23 per share by End of April 2025. Currently trading at Ksh 16-16.50, hence potential capital gains of about Ksh 7 (about 40%) in the next 6 months. Happy Hunting. The rapid decline of Tbills and bonds rates have sucked money into the equities market with many players now taking position for a very likely 2025 upward price momentum for most counters. DTB has today recorded its highest price in 52 weeks (Ksh 64). Important to keep an eye on those counters that are yet to 'feel' the current (December) price surge. Time to take positions is now. Will be posting my 2025 picks soon. Happy Hunting.
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Rank: Veteran Joined: 8/10/2014 Posts: 977 Location: Kenya
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stocksmaster wrote:stocksmaster wrote:watesh wrote:watesh wrote:watesh wrote:Let me join in and share mine
Key Play For 2024
Kenya Power
The stock that everyone loves to hate.
FY23 EPS: (1.64)
Current Share Price: 1.6
P/E rato: NIL
Dividend pay out ratio: NIL
Tail winds
1.New tariffs – Average charge per unit will be up by at least 40% (consumption charge excluding FCC,FERFA,IA etc) this goes directly to KPLC. Margins doubled at half year as compared to the 2022 election tariff. 2nd half % growth will be lower since new tariffs commenced on April.
2. EPRA approved recovery of 6.5bn for tariff cut extension. Half of it will be in FY24 so that’s an extra 3.2bn
3. Heavy recovery of forex charges – In FY23 there was a 5bn charge in the cost of sales related to unrealized forex costs that wasn’t recovered due to lack of dollars for payment. KP had to eat up the cost. Currently in FY24, H2 forex recoveries as of April are already 40% higher than H1 indicating heavy recoveries in H2.
4. $/Ksh rate – If by June 30th the rate of dollar to ksh sticks to 140 and below, there will be very little unrealized for losses for the year. Assuming costs don’t skyrocket and gross profit at H2 is similar to H1, EPS should be approx 5 when rate is at 150, 3 when at 160 and sinks into losses past 170.
5. Cashflows – For the past 2 financial years KP has had really amazing cashflows. Now sitting at almost 20bn as at Dec 2023. I expect at least 2bn in interest income
6. Transfer of assets to Ketraco – KP CEO & CFO revealed they rarely revalue their assets eg land. Hence valuations are very highly muted. The transfer wipes out 80bn in debt. Commercial debt stands at 36bn. I wonder if this will trigger a forex loss recovery that has accumulated to over ksh20bn. Either way less interest charges and unrealized forex loss charge.
7. Good rains – From November to date, the more margin rich hydro power is being dispatched over thermal. There is more curtailment of wind & geothermal in favor of hydro. Wind is low margin.
8. Debt recovery – Defaults are over 35bn and there was a provisions charge of 2bn. A tender was issued in Feb for this. Each billion counts in the bottom line.
9. New management – New board, new ceo, more minority shareholder representation. The stalemate is over and things can get moving.
10. Presidential directive – All commercial state corporations should provide 80% of profit after tax for payment of dividend. It’s a long shot but if KP even issues something small, share price will skyrocket. CFO revealed the new board was asking him to budget something for minority shareholders.
11. No major power plant – No jump in capacity charges which are KP’s biggest COS charge.
12. IMF is watching like a hawk
Headwinds
1.ksh – each drop means added costs
2. Loans repayments – Biggest consumer of cash. Moratorium from govt is expiring
3. Government – Any directive can sink the ship
4. Procurement theft – This is where the biggest leakage is. Major projects = major theft. Currently, we have meters and more last mile.
5. Capital gains tax – Transferring assets to Ketraco may trigger a huge capital gains tax.
6. Negative working capital - its shrinking but just doesn't look good on the company.
7. New debt from world bank $300m interest free. It will ease cashflow pains but more unrealized forex losses again.
My target price is 3+ by June 2025 but this is highly dependent on the performance of the ksh. I will jump ship past 170. My current cost basis is 1.55, a price it has stuck to since the onset of the pandemic. So the downside risk is kind of muted. Not planning to hold long term because power utility growth is just 3 - 5% annually
Please criticize my overly optimistic view.
Small update on this: 30th June (date of financial year end). Shilling closed at 130 which means some of the unrealized foreign exchange losses incurred in H1 have been reversed (H1 opened at 140 and closed at 156 as of Dec 31st). Out of the 15 billion charge, around 3bn should be interest charge and others. Without that unrealized forex charge, H1 PBT should be in the range of 10 - 12.5bn. H2 forex charge recoveries were cumulatively approx 60% higher than h1 despite the appreciation of the ksh and heavy rains in Nov, Dec, March, April and May. The extra 10bob appreciation of the ksh means Kenya Power has some unrealized forex gains. However, assuming they book it as a below the line item hence doesn't affect the PBT, I expect PBT for the full year to hit 20 - 25bn (I have also assumed H1 performance is = to H2). Hence PAT of ksh14 - ksh17.5 and EPS of approx 7 - 8.75 for FY24. See you at end of October. End of October is here. Profit after tax surged to KES 30.08B, a substantial recovery from the previous year’s loss of KES 3.2B, driven by 21% revenue growth and lower finance costs. ⚡️ Electricity sales rose 21% to KES 231.12B, boosted by 447,251 new customer connections and manufacturing growth. 💹 Stronger Shilling in the second half limited cost of sales increases, resulting in a higher gross margin relative to revenue growth. 📊 New cost-reflective tariff in April 2023 supported sales growth. 💰 Finance costs dropped by KES 24.84B, with a KES 7.88B foreign exchange gain from Shilling appreciation against the USD and Euro. ⚙️ Power purchase costs increased to KES 150.61B due to higher demand and earlier high exchange rates. 💼 Operating expenses rose to KES 46.28B due to 92% higher wheeling charges and additional technical staff. 📜 Staff costs impacted by 2023 Finance Act and inflation, managed through zero-based budgeting. 🔄 Working capital improved from negative KES 74.85B (FY 2019-2020) to negative KES 27.44B. 💸 Proposed dividend of KES 0.70 per share, payable 31 Jan 2025. So my target exit price will be calculated using a P/E of 1 - 1.5. So with than an EPS of 15, my minimum share price is 15. Otherwise, I can hold with a starting dividend yield of 46%. There is a likelihood of an interim dividend in March. Free Cashflows should drastically improve once all power producer arreas are cleared. Debt payments should also be lower since commercial debt obligations are much lower. Short term, the market seems to prefer valuation based on dividend yield. Using the Tbills as a benchmark (since the KPLC and KenGen shares are most likely competing for investment money with these fixed income instruments),the prevailing rates for 91,183 and 364 days instruments are approximately 14%, 14.5% and 15% respectively. That means the short term price target for KPLC using the average of 14.5% yield at a dividend of Ksh 0.70 is Ksh 4.82 hence most likely a trading range of 4.65-5.00 (for a 14-15% dividend yield). For KenGen, applying same parameters of a trading range of 14-15% dividend yield gives a range of Ksh 4.35-4.65 (Median of Ksh 4.50). Thus, at current prices, KenGen seems to have the more upside potential for short term play (a 10-15% short term upside potential before books closure). Long term, KPLC has much higher potential as the realistic price should be in the Ksh 10-15 region once they wipe out the negative working capital in the next one year and are thus able to improve drastically on the dividends. Happy Hunting Looks like KenGen will have a very good 2024-2025 financial year with Ksh 4.14bn sale in carbon credits to be booked in Jan 2025......that's about 2/3rds of this year's total net earnings being generated from that single transaction. https://www.businessdail...n-credits-sales-4822446
Diamond Trust Bank also looks like it's going to report some muscular Q3 performance based on the DTB Tanzania Q3 results. As the largest Kenyan bank in TZ (both in Assets and Profits), it reported a 331% net earnings with a net profit of Ksh 1.9bn (equivalent to about Ksh 6.80 EPS from just the TZ unit for Q3). https://x.com/TheAbojani...-TaIl6iaf6HQ-w&s=19
My third short term pick (6 months horizon) is Umeme. Their 20 year power concession ends in Feb 2025 (3 months time) with a buyout by the Uganda Govt projected at about USD 255M (about KSh 20.50 per share). Add a final dividend of about Ksh 2-3, and that's a value of about Ksh 23 per share by End of April 2025. Currently trading at Ksh 16-16.50, hence potential capital gains of about Ksh 7 (about 40%) in the next 6 months. Happy Hunting. DTB is flying! 75 today. Good eye!!
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Rank: Member Joined: 9/26/2006 Posts: 410 Location: CENTRAL PROVINCE
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watesh wrote:stocksmaster wrote:stocksmaster wrote:watesh wrote:watesh wrote:watesh wrote:Let me join in and share mine
Key Play For 2024
Kenya Power
The stock that everyone loves to hate.
FY23 EPS: (1.64)
Current Share Price: 1.6
P/E rato: NIL
Dividend pay out ratio: NIL
Tail winds
1.New tariffs – Average charge per unit will be up by at least 40% (consumption charge excluding FCC,FERFA,IA etc) this goes directly to KPLC. Margins doubled at half year as compared to the 2022 election tariff. 2nd half % growth will be lower since new tariffs commenced on April.
2. EPRA approved recovery of 6.5bn for tariff cut extension. Half of it will be in FY24 so that’s an extra 3.2bn
3. Heavy recovery of forex charges – In FY23 there was a 5bn charge in the cost of sales related to unrealized forex costs that wasn’t recovered due to lack of dollars for payment. KP had to eat up the cost. Currently in FY24, H2 forex recoveries as of April are already 40% higher than H1 indicating heavy recoveries in H2.
4. $/Ksh rate – If by June 30th the rate of dollar to ksh sticks to 140 and below, there will be very little unrealized for losses for the year. Assuming costs don’t skyrocket and gross profit at H2 is similar to H1, EPS should be approx 5 when rate is at 150, 3 when at 160 and sinks into losses past 170.
5. Cashflows – For the past 2 financial years KP has had really amazing cashflows. Now sitting at almost 20bn as at Dec 2023. I expect at least 2bn in interest income
6. Transfer of assets to Ketraco – KP CEO & CFO revealed they rarely revalue their assets eg land. Hence valuations are very highly muted. The transfer wipes out 80bn in debt. Commercial debt stands at 36bn. I wonder if this will trigger a forex loss recovery that has accumulated to over ksh20bn. Either way less interest charges and unrealized forex loss charge.
7. Good rains – From November to date, the more margin rich hydro power is being dispatched over thermal. There is more curtailment of wind & geothermal in favor of hydro. Wind is low margin.
8. Debt recovery – Defaults are over 35bn and there was a provisions charge of 2bn. A tender was issued in Feb for this. Each billion counts in the bottom line.
9. New management – New board, new ceo, more minority shareholder representation. The stalemate is over and things can get moving.
10. Presidential directive – All commercial state corporations should provide 80% of profit after tax for payment of dividend. It’s a long shot but if KP even issues something small, share price will skyrocket. CFO revealed the new board was asking him to budget something for minority shareholders.
11. No major power plant – No jump in capacity charges which are KP’s biggest COS charge.
12. IMF is watching like a hawk
Headwinds
1.ksh – each drop means added costs
2. Loans repayments – Biggest consumer of cash. Moratorium from govt is expiring
3. Government – Any directive can sink the ship
4. Procurement theft – This is where the biggest leakage is. Major projects = major theft. Currently, we have meters and more last mile.
5. Capital gains tax – Transferring assets to Ketraco may trigger a huge capital gains tax.
6. Negative working capital - its shrinking but just doesn't look good on the company.
7. New debt from world bank $300m interest free. It will ease cashflow pains but more unrealized forex losses again.
My target price is 3+ by June 2025 but this is highly dependent on the performance of the ksh. I will jump ship past 170. My current cost basis is 1.55, a price it has stuck to since the onset of the pandemic. So the downside risk is kind of muted. Not planning to hold long term because power utility growth is just 3 - 5% annually
Please criticize my overly optimistic view.
Small update on this: 30th June (date of financial year end). Shilling closed at 130 which means some of the unrealized foreign exchange losses incurred in H1 have been reversed (H1 opened at 140 and closed at 156 as of Dec 31st). Out of the 15 billion charge, around 3bn should be interest charge and others. Without that unrealized forex charge, H1 PBT should be in the range of 10 - 12.5bn. H2 forex charge recoveries were cumulatively approx 60% higher than h1 despite the appreciation of the ksh and heavy rains in Nov, Dec, March, April and May. The extra 10bob appreciation of the ksh means Kenya Power has some unrealized forex gains. However, assuming they book it as a below the line item hence doesn't affect the PBT, I expect PBT for the full year to hit 20 - 25bn (I have also assumed H1 performance is = to H2). Hence PAT of ksh14 - ksh17.5 and EPS of approx 7 - 8.75 for FY24. See you at end of October. End of October is here. Profit after tax surged to KES 30.08B, a substantial recovery from the previous year’s loss of KES 3.2B, driven by 21% revenue growth and lower finance costs. ⚡️ Electricity sales rose 21% to KES 231.12B, boosted by 447,251 new customer connections and manufacturing growth. 💹 Stronger Shilling in the second half limited cost of sales increases, resulting in a higher gross margin relative to revenue growth. 📊 New cost-reflective tariff in April 2023 supported sales growth. 💰 Finance costs dropped by KES 24.84B, with a KES 7.88B foreign exchange gain from Shilling appreciation against the USD and Euro. ⚙️ Power purchase costs increased to KES 150.61B due to higher demand and earlier high exchange rates. 💼 Operating expenses rose to KES 46.28B due to 92% higher wheeling charges and additional technical staff. 📜 Staff costs impacted by 2023 Finance Act and inflation, managed through zero-based budgeting. 🔄 Working capital improved from negative KES 74.85B (FY 2019-2020) to negative KES 27.44B. 💸 Proposed dividend of KES 0.70 per share, payable 31 Jan 2025. So my target exit price will be calculated using a P/E of 1 - 1.5. So with than an EPS of 15, my minimum share price is 15. Otherwise, I can hold with a starting dividend yield of 46%. There is a likelihood of an interim dividend in March. Free Cashflows should drastically improve once all power producer arreas are cleared. Debt payments should also be lower since commercial debt obligations are much lower. Short term, the market seems to prefer valuation based on dividend yield. Using the Tbills as a benchmark (since the KPLC and KenGen shares are most likely competing for investment money with these fixed income instruments),the prevailing rates for 91,183 and 364 days instruments are approximately 14%, 14.5% and 15% respectively. That means the short term price target for KPLC using the average of 14.5% yield at a dividend of Ksh 0.70 is Ksh 4.82 hence most likely a trading range of 4.65-5.00 (for a 14-15% dividend yield). For KenGen, applying same parameters of a trading range of 14-15% dividend yield gives a range of Ksh 4.35-4.65 (Median of Ksh 4.50). Thus, at current prices, KenGen seems to have the more upside potential for short term play (a 10-15% short term upside potential before books closure). Long term, KPLC has much higher potential as the realistic price should be in the Ksh 10-15 region once they wipe out the negative working capital in the next one year and are thus able to improve drastically on the dividends. Happy Hunting Looks like KenGen will have a very good 2024-2025 financial year with Ksh 4.14bn sale in carbon credits to be booked in Jan 2025......that's about 2/3rds of this year's total net earnings being generated from that single transaction. https://www.businessdail...n-credits-sales-4822446
Diamond Trust Bank also looks like it's going to report some muscular Q3 performance based on the DTB Tanzania Q3 results. As the largest Kenyan bank in TZ (both in Assets and Profits), it reported a 331% net earnings with a net profit of Ksh 1.9bn (equivalent to about Ksh 6.80 EPS from just the TZ unit for Q3). https://x.com/TheAbojani...-TaIl6iaf6HQ-w&s=19
My third short term pick (6 months horizon) is Umeme. Their 20 year power concession ends in Feb 2025 (3 months time) with a buyout by the Uganda Govt projected at about USD 255M (about KSh 20.50 per share). Add a final dividend of about Ksh 2-3, and that's a value of about Ksh 23 per share by End of April 2025. Currently trading at Ksh 16-16.50, hence potential capital gains of about Ksh 7 (about 40%) in the next 6 months. Happy Hunting. DTB is flying! 75 today. Good eye!! DTB has a book value of about Ksh 265, EPS of about Ksh 25-27 and expected dividend payment of Ksh 7 for financial year 2024....it's true share value should be about Ksh 90. Since I posted in March as one of my top picks, it has gained 52% in those 9 months. Happy Hunting.
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Rank: Veteran Joined: 8/10/2014 Posts: 977 Location: Kenya
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watesh wrote:Let me join in and share mine
Key Play For 2024
Kenya Power
The stock that everyone loves to hate.
FY23 EPS: (1.64)
Current Share Price: 1.6
P/E rato: NIL
Dividend pay out ratio: NIL
Tail winds
1.New tariffs – Average charge per unit will be up by at least 40% (consumption charge excluding FCC,FERFA,IA etc) this goes directly to KPLC. Margins doubled at half year as compared to the 2022 election tariff. 2nd half % growth will be lower since new tariffs commenced on April.
2. EPRA approved recovery of 6.5bn for tariff cut extension. Half of it will be in FY24 so that’s an extra 3.2bn
3. Heavy recovery of forex charges – In FY23 there was a 5bn charge in the cost of sales related to unrealized forex costs that wasn’t recovered due to lack of dollars for payment. KP had to eat up the cost. Currently in FY24, H2 forex recoveries as of April are already 40% higher than H1 indicating heavy recoveries in H2.
4. $/Ksh rate – If by June 30th the rate of dollar to ksh sticks to 140 and below, there will be very little unrealized for losses for the year. Assuming costs don’t skyrocket and gross profit at H2 is similar to H1, EPS should be approx 5 when rate is at 150, 3 when at 160 and sinks into losses past 170.
5. Cashflows – For the past 2 financial years KP has had really amazing cashflows. Now sitting at almost 20bn as at Dec 2023. I expect at least 2bn in interest income
6. Transfer of assets to Ketraco – KP CEO & CFO revealed they rarely revalue their assets eg land. Hence valuations are very highly muted. The transfer wipes out 80bn in debt. Commercial debt stands at 36bn. I wonder if this will trigger a forex loss recovery that has accumulated to over ksh20bn. Either way less interest charges and unrealized forex loss charge.
7. Good rains – From November to date, the more margin rich hydro power is being dispatched over thermal. There is more curtailment of wind & geothermal in favor of hydro. Wind is low margin.
8. Debt recovery – Defaults are over 35bn and there was a provisions charge of 2bn. A tender was issued in Feb for this. Each billion counts in the bottom line.
9. New management – New board, new ceo, more minority shareholder representation. The stalemate is over and things can get moving.
10. Presidential directive – All commercial state corporations should provide 80% of profit after tax for payment of dividend. It’s a long shot but if KP even issues something small, share price will skyrocket. CFO revealed the new board was asking him to budget something for minority shareholders.
11. No major power plant – No jump in capacity charges which are KP’s biggest COS charge.
12. IMF is watching like a hawk
Headwinds
1.ksh – each drop means added costs
2. Loans repayments – Biggest consumer of cash. Moratorium from govt is expiring
3. Government – Any directive can sink the ship
4. Procurement theft – This is where the biggest leakage is. Major projects = major theft. Currently, we have meters and more last mile.
5. Capital gains tax – Transferring assets to Ketraco may trigger a huge capital gains tax.
6. Negative working capital - its shrinking but just doesn't look good on the company.
7. New debt from world bank $300m interest free. It will ease cashflow pains but more unrealized forex losses again.
My target price is 3+ by June 2025 but this is highly dependent on the performance of the ksh. I will jump ship past 170. My current cost basis is 1.55, a price it has stuck to since the onset of the pandemic. So the downside risk is kind of muted. Not planning to hold long term because power utility growth is just 3 - 5% annually
Please criticize my overly optimistic view.
So still on this play...still holding all of my positions Half Year is coming up next and this is what I expect 1. Dollar to ksh closes out at 130 so the half year profits will portray a significant boost as compared to last year when it closed at 156 (lack of the huge unrealized forex loss). However, by full year this should normalize. 2. There was a scheduled approx average of 5% in tariff reduction so this should affect the revenue & margins but should be offset by growth. In the 2nd half of 2024 we have had multiple new peak power demand and multiple record power consumption levels. 3. Higher operational expenses due to more staff and higher KETRACO charges For me the income statement results won't be much of a huge factor in FY25. However, the cashflow statement will be the biggest driver. Kenya Power just spent Ksh1.36bn to pay dividends which is very tiny compared to the 30bn cash it brought from operations (lower than what it got from interest income alone). FY2024 had some extra ordinary cash spend. Some examples 1. Reduction in payables to generators. An extra 24bn was spent as compared to FY23. 2. An extra 12bn was spent to clear backlog of meters & transformers Here are some of the things I am on the look out for in the cashflow 1. Reduction of the spending on clearing arrears to generators. 2. Slight reduction on the purchase of property & equipment. 600,000 new meters and 2bn spend on transformers is the target. 3. Stepping up on loan repayments since Kenya Power have started paying back on-lent loans, 12bn was budgeted for fy25. Commercial loans are still on schedule 4. If the govt reduces a part of the 30bn they owe the company. If the company increases the dividend budget by 1bn that should send the share price to 8 at a 15% yield. Half years results will give us a peak into the direction the cashflows are headed. Happy new year folks!
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Rank: Member Joined: 9/26/2006 Posts: 410 Location: CENTRAL PROVINCE
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stocksmaster wrote:First Play 2024: Diamond Trust BankKey Statistics:Price: Ksh 49.30 Book Value per share: Ksh 256.80 Price to book value:0.19 (Industry Mean is 0.7) P/E Ratio: 2.2 (Industry Mean is 3.5) Dividend yield: 10.1% (Industry average: 10.7%) Dividend pay out ratio (2022): 23.1% (Industry average: 40.3%) Trailing Return on Equity(As at Q3, 2023): 10.02% versus industry average of 18.8% Trailing Return on assets: 1.29% versus industry average of 2.6% Non Performing Loans at 12.43% versus Industry average of 15% Diamond Trust Bank is an undervalued sleeping giant trading at an incredibly low price to book value of below 0.2 (about ¼ of industry average). It is also trading at a P/E of about 2 which is almost half of the industry average. The undervaluation of the DTB share is partly due to its low return on assets and return on equity which is about half the industry average. The 2023 Q3 results however showed an improving picture on the two metrics which may signal the sleeping giant is starting to awaken. The Q3 results also showed that the NPL for Diamond Trust Bank was lower than industry average (12.43% versus 15%) indicating more prudent lending by the bank. Going forward and in anticipation of the 2023 Full Year Results, DTB can deliver above average results based on its Q3 results to a projected EPS of 25-28 for 2023. This would be just slightly lower than Stanbic Holdings (Ksh 30.75 for 2023 but trading at Ksh 119.50 showing just how undervalued the DTB share is suffering). The bank has had a conservative dividend pay out policy (about 21% in 2021 and 23% in 2022) but the DTB Chairman of the Board, Mr Linus Gitahi is quoted as stating that this dividend pay out will rise gradually as the bank balances between pay out and reinvestment into the business (the bank is investing in both branch expansion of 20 branches per year since 2022 and improving on its digital banking delivery). If the growth in pay out continues on the same trajectory, a dividend pay out ratio of 25% for 2023 can be projected. That projects to a possible dividend payment of Ksh 6.25 – 7.00 for 2023. Diamond Trust Bank can be both a short-term play with about 20-25% upside potential or a long term play as its ROA, ROE and Dividend Pay Out Ratio improves and starts approaching the market pricing of Stanbic Holdings. The expansion drive (40 branches in 2 years since 2022) and investment in technology is also anticipated to start bearing fruits from 2024 which may see sizeable growth in the bottom line. Happy Hunting REVIEW OF 2024: As the year comes to an end, DTB has moved from Ksh 49.30 to Ksh 69 as at today. Their was also a dividends of Ksh 6, hence a net gain of about 52% from March 2023. The target price remains around Ksh 90 which is the true value of this share. CIC, my other pick dissapointed predicitions as it is trading at Ksh 2.15 (plus a dividends of Ksh 0.13), hence as net of -5% from March 2024. During the year i also boarded KPLC courtesy of insights provided by @Watesh at a price of Ksh 2. This has outperformed all expectations as the share is currently trading at Ksh 4.81 (plus dividends of Ksh 0.70) hence a net return of 175%. Cummulatively, the three picks i invested in for this year have returned an 88% return on investment for my portfolio which is 5 times better than any local MMF or local bond.This is a decent return especially after a long absence from the market (hence some misteps like the CIC investment). I will shortly post my 2025 picks. Happy Hunting
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Rank: Member Joined: 1/31/2007 Posts: 304
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watesh wrote:watesh wrote:Let me join in and share mine
Key Play For 2024
Kenya Power
The stock that everyone loves to hate.
FY23 EPS: (1.64)
Current Share Price: 1.6
P/E rato: NIL
Dividend pay out ratio: NIL
Tail winds
1.New tariffs – Average charge per unit will be up by at least 40% (consumption charge excluding FCC,FERFA,IA etc) this goes directly to KPLC. Margins doubled at half year as compared to the 2022 election tariff. 2nd half % growth will be lower since new tariffs commenced on April.
2. EPRA approved recovery of 6.5bn for tariff cut extension. Half of it will be in FY24 so that’s an extra 3.2bn
3. Heavy recovery of forex charges – In FY23 there was a 5bn charge in the cost of sales related to unrealized forex costs that wasn’t recovered due to lack of dollars for payment. KP had to eat up the cost. Currently in FY24, H2 forex recoveries as of April are already 40% higher than H1 indicating heavy recoveries in H2.
4. $/Ksh rate – If by June 30th the rate of dollar to ksh sticks to 140 and below, there will be very little unrealized for losses for the year. Assuming costs don’t skyrocket and gross profit at H2 is similar to H1, EPS should be approx 5 when rate is at 150, 3 when at 160 and sinks into losses past 170.
5. Cashflows – For the past 2 financial years KP has had really amazing cashflows. Now sitting at almost 20bn as at Dec 2023. I expect at least 2bn in interest income
6. Transfer of assets to Ketraco – KP CEO & CFO revealed they rarely revalue their assets eg land. Hence valuations are very highly muted. The transfer wipes out 80bn in debt. Commercial debt stands at 36bn. I wonder if this will trigger a forex loss recovery that has accumulated to over ksh20bn. Either way less interest charges and unrealized forex loss charge.
7. Good rains – From November to date, the more margin rich hydro power is being dispatched over thermal. There is more curtailment of wind & geothermal in favor of hydro. Wind is low margin.
8. Debt recovery – Defaults are over 35bn and there was a provisions charge of 2bn. A tender was issued in Feb for this. Each billion counts in the bottom line.
9. New management – New board, new ceo, more minority shareholder representation. The stalemate is over and things can get moving.
10. Presidential directive – All commercial state corporations should provide 80% of profit after tax for payment of dividend. It’s a long shot but if KP even issues something small, share price will skyrocket. CFO revealed the new board was asking him to budget something for minority shareholders.
11. No major power plant – No jump in capacity charges which are KP’s biggest COS charge.
12. IMF is watching like a hawk
Headwinds
1.ksh – each drop means added costs
2. Loans repayments – Biggest consumer of cash. Moratorium from govt is expiring
3. Government – Any directive can sink the ship
4. Procurement theft – This is where the biggest leakage is. Major projects = major theft. Currently, we have meters and more last mile.
5. Capital gains tax – Transferring assets to Ketraco may trigger a huge capital gains tax.
6. Negative working capital - its shrinking but just doesn't look good on the company.
7. New debt from world bank $300m interest free. It will ease cashflow pains but more unrealized forex losses again.
My target price is 3+ by June 2025 but this is highly dependent on the performance of the ksh. I will jump ship past 170. My current cost basis is 1.55, a price it has stuck to since the onset of the pandemic. So the downside risk is kind of muted. Not planning to hold long term because power utility growth is just 3 - 5% annually
Please criticize my overly optimistic view.
So still on this play...still holding all of my positions Half Year is coming up next and this is what I expect 1. Dollar to ksh closes out at 130 so the half year profits will portray a significant boost as compared to last year when it closed at 156 (lack of the huge unrealized forex loss). However, by full year this should normalize. 2. There was a scheduled approx average of 5% in tariff reduction so this should affect the revenue & margins but should be offset by growth. In the 2nd half of 2024 we have had multiple new peak power demand and multiple record power consumption levels. 3. Higher operational expenses due to more staff and higher KETRACO charges For me the income statement results won't be much of a huge factor in FY25. However, the cashflow statement will be the biggest driver. Kenya Power just spent Ksh1.36bn to pay dividends which is very tiny compared to the 30bn cash it brought from operations (lower than what it got from interest income alone). FY2024 had some extra ordinary cash spend. Some examples 1. Reduction in payables to generators. An extra 24bn was spent as compared to FY23. 2. An extra 12bn was spent to clear backlog of meters & transformers Here are some of the things I am on the look out for in the cashflow 1. Reduction of the spending on clearing arrears to generators. 2. Slight reduction on the purchase of property & equipment. 600,000 new meters and 2bn spend on transformers is the target. 3. Stepping up on loan repayments since Kenya Power have started paying back on-lent loans, 12bn was budgeted for fy25. Commercial loans are still on schedule 4. If the govt reduces a part of the 30bn they owe the company. If the company increases the dividend budget by 1bn that should send the share price to 8 at a 15% yield. Half years results will give us a peak into the direction the cashflows are headed. Happy new year folks! Thank you Watesh for this great insight, as a result I have made the biggest paper gains on a single counter in my 24 years of investing at the Nairobi stock exchange, not to mention the hefty dividend that is coming at the end of this month. I entered the stock at around 2/= around July 2024 in a very big big way!!!.The share is now at 5.18/= in the process it has minted for me profits in the seven digit range. I cannot over emphasis my gratitude to you. I owe you a goat or a bottle of your choice drink or both.I hope one day we could meet over the same. Happy New Year..I pray that God continues to grant you wisdom and valuable insights.
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Rank: Veteran Joined: 8/10/2014 Posts: 977 Location: Kenya
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moneydust wrote:watesh wrote:watesh wrote:Let me join in and share mine
Key Play For 2024
Kenya Power
The stock that everyone loves to hate.
FY23 EPS: (1.64)
Current Share Price: 1.6
P/E rato: NIL
Dividend pay out ratio: NIL
Tail winds
1.New tariffs – Average charge per unit will be up by at least 40% (consumption charge excluding FCC,FERFA,IA etc) this goes directly to KPLC. Margins doubled at half year as compared to the 2022 election tariff. 2nd half % growth will be lower since new tariffs commenced on April.
2. EPRA approved recovery of 6.5bn for tariff cut extension. Half of it will be in FY24 so that’s an extra 3.2bn
3. Heavy recovery of forex charges – In FY23 there was a 5bn charge in the cost of sales related to unrealized forex costs that wasn’t recovered due to lack of dollars for payment. KP had to eat up the cost. Currently in FY24, H2 forex recoveries as of April are already 40% higher than H1 indicating heavy recoveries in H2.
4. $/Ksh rate – If by June 30th the rate of dollar to ksh sticks to 140 and below, there will be very little unrealized for losses for the year. Assuming costs don’t skyrocket and gross profit at H2 is similar to H1, EPS should be approx 5 when rate is at 150, 3 when at 160 and sinks into losses past 170.
5. Cashflows – For the past 2 financial years KP has had really amazing cashflows. Now sitting at almost 20bn as at Dec 2023. I expect at least 2bn in interest income
6. Transfer of assets to Ketraco – KP CEO & CFO revealed they rarely revalue their assets eg land. Hence valuations are very highly muted. The transfer wipes out 80bn in debt. Commercial debt stands at 36bn. I wonder if this will trigger a forex loss recovery that has accumulated to over ksh20bn. Either way less interest charges and unrealized forex loss charge.
7. Good rains – From November to date, the more margin rich hydro power is being dispatched over thermal. There is more curtailment of wind & geothermal in favor of hydro. Wind is low margin.
8. Debt recovery – Defaults are over 35bn and there was a provisions charge of 2bn. A tender was issued in Feb for this. Each billion counts in the bottom line.
9. New management – New board, new ceo, more minority shareholder representation. The stalemate is over and things can get moving.
10. Presidential directive – All commercial state corporations should provide 80% of profit after tax for payment of dividend. It’s a long shot but if KP even issues something small, share price will skyrocket. CFO revealed the new board was asking him to budget something for minority shareholders.
11. No major power plant – No jump in capacity charges which are KP’s biggest COS charge.
12. IMF is watching like a hawk
Headwinds
1.ksh – each drop means added costs
2. Loans repayments – Biggest consumer of cash. Moratorium from govt is expiring
3. Government – Any directive can sink the ship
4. Procurement theft – This is where the biggest leakage is. Major projects = major theft. Currently, we have meters and more last mile.
5. Capital gains tax – Transferring assets to Ketraco may trigger a huge capital gains tax.
6. Negative working capital - its shrinking but just doesn't look good on the company.
7. New debt from world bank $300m interest free. It will ease cashflow pains but more unrealized forex losses again.
My target price is 3+ by June 2025 but this is highly dependent on the performance of the ksh. I will jump ship past 170. My current cost basis is 1.55, a price it has stuck to since the onset of the pandemic. So the downside risk is kind of muted. Not planning to hold long term because power utility growth is just 3 - 5% annually
Please criticize my overly optimistic view.
So still on this play...still holding all of my positions Half Year is coming up next and this is what I expect 1. Dollar to ksh closes out at 130 so the half year profits will portray a significant boost as compared to last year when it closed at 156 (lack of the huge unrealized forex loss). However, by full year this should normalize. 2. There was a scheduled approx average of 5% in tariff reduction so this should affect the revenue & margins but should be offset by growth. In the 2nd half of 2024 we have had multiple new peak power demand and multiple record power consumption levels. 3. Higher operational expenses due to more staff and higher KETRACO charges For me the income statement results won't be much of a huge factor in FY25. However, the cashflow statement will be the biggest driver. Kenya Power just spent Ksh1.36bn to pay dividends which is very tiny compared to the 30bn cash it brought from operations (lower than what it got from interest income alone). FY2024 had some extra ordinary cash spend. Some examples 1. Reduction in payables to generators. An extra 24bn was spent as compared to FY23. 2. An extra 12bn was spent to clear backlog of meters & transformers Here are some of the things I am on the look out for in the cashflow 1. Reduction of the spending on clearing arrears to generators. 2. Slight reduction on the purchase of property & equipment. 600,000 new meters and 2bn spend on transformers is the target. 3. Stepping up on loan repayments since Kenya Power have started paying back on-lent loans, 12bn was budgeted for fy25. Commercial loans are still on schedule 4. If the govt reduces a part of the 30bn they owe the company. If the company increases the dividend budget by 1bn that should send the share price to 8 at a 15% yield. Half years results will give us a peak into the direction the cashflows are headed. Happy new year folks! Thank you Watesh for this great insight, as a result I have made the biggest paper gains on a single counter in my 24 years of investing at the Nairobi stock exchange, not to mention the hefty dividend that is coming at the end of this month. I entered the stock at around 2/= around July 2024 in a very big big way!!!.The share is now at 5.18/= in the process it has minted for me profits in the seven digit range. I cannot over emphasis my gratitude to you. I owe you a goat or a bottle of your choice drink or both.I hope one day we could meet over the same. Happy New Year..I pray that God continues to grant you wisdom and valuable insights. I am glad you saw the sense in my numbers and took advantage. May we find more rare opportunities like this one. Cheers mate!
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Wazua
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Time to play the Market......2024
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