Protection from macroeconomic shocks, improvement in dividend payouts and hefty efficiency gains in initial years builds our investment outlook for NPL
The indexation of various tariff indicators to USD/PKR rate shields the company from adverse local currency movements. we expect PKR to depreciate at an average 5% against USD throughout the project life, thereby strengthening the company’s bottom-line
The plant can save upto 4-5 gms of fuel per unit generated in its initial years which effectively translates into FY13EPS impact of PKR0.76/sh
The O&M expenses for a new plant are less than estimated which will let NPL save almost PKR 300mn in FY13
We expect the cash position of the company to improve as 1)Involvement of Supreme Court to resolve the inter-industry debt issue 2) FY13 being the election year will force the government to release funds and take some steps to ease the power outages. Resultantly NPL will be able to pay a dividend of PKR2/sh for FY12 increasing its payout ratio to 37%, we anticipate
Circular debt continues to nag the entire energy chain and NPL is no exception. We don’t see any structural long-term resolution to this problem in the near future but a strong possibility of releasing funds to IPPs in FY13 to settle the power outcry countrywide seems evident
The scrip is available at a Jun’13 TP of PKR 16.25 using the dividend discount model providing an upside of 8.4% from current levels and a dividend yield of 13.3% taking the total returns to 22.7% - BUY !
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