Intermarket Perspective - Nishat IPPs - Initiating Coverage -Dividend story lacks excitement, initiate with Neutral
- We initiate coverage on Nishat IPPs (Target Price: NCPL: PkR51/sh, NPL: PkR48) with a Neutral rating. While Operations and Maintenance savings (O&M) may sustain high D/Y for the next few years (FY17-20F: 13%), we expect dividends to drop post FY20 as both companies retire their senior debt. NPL/NCPL offer an IRR of +8% for other IPPs.
- Inability to sustain O&M savings coupled with normalized fuel savings amid weak furnace oil prices are likely to limit LT dividend growth given ROE contribution to total distributable dividends stands at ~47%. Moreover, with limited options available for expansion, potential for alpha generation remains minimal.
- NPL and NCPL have historically traded at a discount to the market (FY17F: 6.4x vs. the IPP space: 8x) however due to lack of triggers ahead, coupled with questionable sustainability of recurring dividends (PkR7/sh) this discount to peers appears misleading, Neutral.
Nishat Power Limited is a Pakistan-based company, which as an independent power producer (IPP). The principal activity of the Company includes building, owning, operating and maintaining a fuel fired power plant based on Reciprocating Engine Technology having gross capacity of 200 megawatts in Jamber Kalan, Tehsil Pattoki, District Kasur, Punjab, Pakistan. The Company is a subsidiary of Nishat Mills Limited. The Company, through its subsidiary, Lalpir Solar Power (Private) Limited, is engaged in building, owning, operating, and maintaining or investing in a solar power project having gross capacity up to 20 megawatt peak (MWp) with net estimated generation capacity of approximately 19 MWp. Its project site is located at Mehmood Kot, Muzaffar Garh district.
Intermarket Securities Limited (IMS) is a full service corporate brokerage firm based in Karachi, Pakistan. We service both domestic and international clients. IMS was ranked #2 Best Local Brokerage and #3 Best for Overall Country Research for 2016 by AsiaMoney.
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