Report
EUR 8.84 For Business Accounts Only

KAPCO_Acquiring HUBC is a 'Game of thrones'

Running a thorough series of scenario analyses based on multiple factors, we look at what a potential acquisition of 17.4% stake in HUBC would look like for KAPCO (pending approval by BoD & public announcement of intention/offer). Incorporating decision trees while valuing outcomes using the DCF methodology (isolating dividend streams from current operations and potential expenses from increased debt burden), our analysis aims to delineate decision making based on value creation from the benefits of specific outcomes (circular debt clearance, dividend income from HUBC). Looking at hampered liquidity and highlighting the dubious overhang from circular debt (75% of KAPCO's total assets as of 3QFY17), we believe any acquisition will involve a hefty debt load (~85% of deal size), where re-payment and handling of liquidity (possible dividend curtailment, allocation of income from extension) remains key to enhancing shareholder value. Citing vagueness on multiple fronts (additional bidders, deal price and premium, privatization) we retain our DDM based TP of PkR83.8/sh (PkR116.5/sh with 15yr extension) on KAPCO (FY18/19F D/Y of 13.1/13.1%).

Underlying
Kot Addu Power

Kot Addu Power Co Ltd. Kot Addu Power Company Limited is a Pakistan-based power generation company. The Company's principal activities are to own, operate and maintain a multi-fuel fired power station with approximately 15 generating units with a nameplate capacity of 1,600 megawatts (MW) in Kot Addu, District Muzaffargarh, Punjab, Pakistan. The Company also sells the electricity produced therefrom to a single customer, the Pakistan water and power development authority. The power plant is a multi-fuel gas-turbine power plant using three fuels to generate electricity: gas, light sulfur furnace oil and high speed diesel. The plant's combined cycle technology enables it to use the waste heat from the gas turbine exhaust to produce steam in the heat recovery steam generator, which in turn is used to run the steam turbines.

Provider
AKD Securities Limited
AKD Securities Limited

AKD Securities Ltd. is one of the leading securities firm in Pakistan, providing a comprehensive range of investor focused services, including equity brokerage, economic and securities research, investment banking and financial advisory services. AKD Securities accounts for more than 6% of the average daily value of the Karachi Stock Exchange. AKD Securities was the first brokerage house to launch an online trading platform in Pakistan in November 2002 and now has the largest market share with over 6000 customers. This has helped diversify and expand the retail investor base in the country and ushered in a whole new universe of investors to the stock market.

AKD Securities Ltd. caters to a diversified group of domestic and international institutional investors, high net worth individuals and upscale retail clients, including expatriate Pakistanis. With high quality research, unparalleled execution and distribution capability for both regular and large block trades, AKD Securities Ltd. has earned an outstanding reputation in the Pakistani securities industry.Outside of commercial banks, AKD Securities Ltd. is one of the biggest capital market firms in the country. AKD Securities is the leader in raising and providing risk capital in underwriting, market making and mergers and acquisitions in Pakistan. Good corporate governance and professionalism are emphasized throughout the firm and AKD Securities Ltd. is amongst the very few companies to have introduced a firm-wide comprehensive CODE of ETHICS, overseen by an independent compliance manager.Ultimately, our success is based on the quality of service we provide to our customers and the trust and confidence reposed in us by them. Our focus, therefore, remains on customer satisfaction at all levels in the company.

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