KenGen Company Plc Company Update & FY19 Earnings Expectations
Ahead of KenGen’s FY19 earnings release and given some key business announcements in the company since our last update, we have reviewed our forecasts and subsequently our valuation of the stock. We estimate a slight 2.5% fall in FY19 EPS driven by expected marginal growth in electricity revenue (3.3% y/y), outpaced by a faster growth in operating expenses (+11.0% y/y). Despite the slight setback in the bottom-line, we expect last year’s KES 0.40 per share dividend to be maintained given the record level of cash generation from operations (KES 24.6Bn) as at 1H19.
Overall, we see significant potential post FY19 and maintain our BUY rating at a target price of KES 8.58.
- Expected full year 2019 EPS at KES 1.17 compared to KES 1.20 in 2018.
- Performance dampened by higher growth in operating expenses (maintenance of wellheads in first half of the year plus impairment for decommissioned Garissa power plant
- Dividend per share to be maintained at KES 0.40
2020 expected to be strong
- 165MW Olkaria V geothermal power plant now fully operational (expected to grow electricity sales by c12%
- Other revenue generating measures- geothermal contractual services across the Eastern African Region (Ethiopia and South Sudan)
- Risks of single buyer to persist given the current challenges of the sole buyer, KPLC
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