By CHARLES MWANIKI
Posted Sunday, May 12 2013 at 12:54
Posted Sunday, May 12 2013 at 12:54
In Summary
- The share closed the week at Sh17.95 from Thursday’s average of Sh18.75, losing Sh1.6 billion of market capitalisation to settle at Sh35 billion.
- Deputy President ordered the stop on tariff reviews last week when he met officials from Treasury, Energy ministry, ERC and Kenya Power.
- Analysts warned that the stock would come under pressure, due to the expected impact on earnings going forward.
Kenya Power’s
share price dropped 4.3 per cent in Friday’s trading at the stock
exchange as investors weighed news of an order by Deputy President
William Ruto halting planned increases in electricity tariffs.
The share closed the week at Sh17.95 from
Thursday’s average of Sh18.75, losing Sh1.6 billion of market
capitalisation to settle at Sh35 billion.
At one point the stock traded 7.1 per cent down at
Sh17.50 weighed down by increased investor supply, before recovering
later in the day.
“The concern is that they have entered into power
buying agreements at certain prices, especially considering new power is
expensive when compared to those power purchase deals they did in the
past, such as before the period of high inflationary pressure in 2011,”
said Suntra Investment Bank research analyst Johnson Nderi.
Mr Ruto on Friday ordered a stop to a planned
raise of electricity tariffs following Kenya Power’s application for
price review to the Energy Regulatory Commission (ERC). The move is
expected to put a strain on Kenya Power’s profit margins.
Kenya Power is allowed to file an application for
tariff increases every three years to cover for increases in inflation,
inputs and new power purchase agreements signed with electricity
generators.
Mr Nderi said the government’s intervention had
left the power company in an awkward position, given that they had done
their project plans while factoring in the increased revenue from the
new tariffs.
Other analysts warned that the stock would come
under pressure, due to the expected impact on earnings going forward as a
result of the government decision.
Mr Ruto ordered the stop on tariff reviews last
week when he met top officials from the Treasury, Ministry of Energy,
the ERC and Kenya Power.
“We expect pressure on the stock with sell-offs,” said stockbroker ABC Capital in a note to clients.
Power producer KenGen,
which is Kenya Power’s biggest supplier of electricity, also saw its
share price drop in Friday’s trading. Its shares which had traded
Thursday unchanged at Sh15.05, dropped 3.6 per cent to close at Sh14.50
on Friday.
Kenya Power had argued that failure to approve the
tariff increase would hurt its capacity to maintain, upgrade
electricity distribution, on which it is planning to spend Sh80 billion
in the medium term.
In its application to the ERC, Kenya Power had
pointed to weak performance in the second half of the financial year to
June 2013.
The company indicated that it expected a 53.4 per
cent fall to Sh3.9 billion in profit before tax in the 2013 financial
year, as operating costs raced ahead of revenue growth.
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