BEEPING KPLC TOKENS

This week, KPLC was the top gainer in the NSE rising by 23.13%. It’s also up 15% YTD. Did Ndindi Nyoro finally convince Kenyan investors that KPLC is a value stock and not a value trap? Some Definitions:

In simple terms, a value stock is a company that’s undervalued based on fundamentals such as sales, earnings, et al. A value trap is an investment that seems underpriced but may actually be a poor investment.

What does Kenya Power do?

The core business of the company is transmission, distribution and retail of electricity purchased in bulk from KenGen, IPPs, imports from Uganda, Ethiopia, and Tanzania. A breakdown of past performances; KPLC has been trading below its All Time High of Ksh 36.11 realized in Jan 2007. Earnings has been declining by 40.6% per year over the past 5 years until last year when it returned to profitability. In 2021, the government agreed to inject cash into Kenya Power to ease concerns that the worsening cash flow positions of the company would hurt operations and slow down economic recovery. This has raised issues if “government run” companies can steer themselves to profitability. A STRONG 2021 For the FY 2021, KPLC recorded a historic 216% YoY growth in profit before tax of Ksh 8.2B compared to a loss of Ksh 7.04B the year before. Operations costs decreased by Ksh 7.973B to Ksh 39.861B. cash flows increased from Ksh 4B to Ksh 6B. The CEO attributed the strong performance to: • Growth in sales and revenue • Double digit reduction in cost and expenses • Decrease in loans and overdrafts

GROWTH POTENTIAL AREAS

1) Sales Growth Kenya Power is seeking to grow sales by connecting more customers, accelerating pace of connectivity and increasing the usage among customers. 2) Tackle Illegal Connection By cracking down on illegal connections and deploying data analytics to curb electricity theft by commercial customers.

3) Lit Fibre Business KPLC exploring the lit fibre business to increase penetration of internet connectivity in rural areas. 4) Electric Vehicles & Motorcycles The company is also positioning itself to drive the e-mobility agenda to increase the adoption of environmentally friendly electric vehicles and motorcycles.

Final Thoughts:

1. Kenya Power can be said to be a sleeping giant. Its earnings have been dropping over the past 5 years, and it has only one year of profitability in the last 5 years.

2. What makes it undervalued? With little competition risks, large asset size, the backing of the government, huge revenue and providing an essential service to the people of Kenya, the company can be undervalued.

3. Problems KPLC need to address • Significant drop in earnings, • Poor service • Power theft • Faulty meters • High cost of operation That’s it for KPLC discussion.

By Fidel