Tuesday, April 04, 2006

KenGen IPO

I'm one of those people who was really siked about this offer then was advised about not going into it without knowing the risks.. so i delved into the prospectus available from http://www.kengen.co.ke using the little fundamental analysis i know (have a look at http://www.investopedia.com/university)


I'm no financial guru...i'm an IT and telecom junkie actually, but here is my analysis:


Bad:
Elections next year - we all know what happens when some people start talking about what they want (not) to do.
Drought - KenGen depends substantially on hydro-electricity (that is an understatement - though they are diversifying).
more minuses in the prospectus...

my good points from fundamental analysis:
KenGen has backward PE of approx. 14.875 based on the IPO share price and the adjusted EPS for the last financial year (ended June 2005) (11.9/0.8).

The industry has backward PE average of 16.55 as at 31st March 2005. GOOD

KenGen has Revenue growth: 23.5% for period ended 31st June 2004 - 31st June 2005.
GOOD

The bulk supply unit price was reduced from 2.36/kWh to 1.76/kWh, back dated to 2003/2004 and as a result 2003/2004 revenues declined.

Revenues grew approx 23.5% in the 2004/2005 financial year.

Revenues are expected to increase further when the bulk supply unit price reverts back to 2.36/kWh on 1st July 2006, representing approx 34% increase. This price increment has already been approved by cabinet and the KenGen Board of Directors.
GOOD

PEG -> 14.875/23.5 = 0.496 -> less than 1. PEG ratios less than one represent stocks warranting a second look.
GOOD

8.3%
projected increase in power consumption for the next 9 years - highly unlikely that excess power will be generated meaning that all power produced will be consumed.
GOOD

In addition; using figures for the six month period ending Dec 31 2005 (0.65 EPS for this 6 month period)

PE of approx = 9.15 (11.9/1.3)

vs the current sector PE of 16.55

and PEG of 9.15/23.5 = 0.39
EVEN BETTER


The current financial years (2005/2006) figures look even more promising..

So I'd say BUY KenGen.

However, i'm no industry expert. All the financial analysis that I learn and am still learning is gleaned from surfing the net and reading books... so follow my 'advice' or thoughts at your peril :)

Again, we all saw the lines when the offer opened on 20th March; people lining up as if the shares were being allocated on a first come first served basis. A good number of retail (as in individual or those with less than 100000) investors are first timers who are probably expecting to cash out as soon as they feel they have made money, without regard to the fundamentals.. I wonder if you can actually follow fundamental / technical analysis / whatever analysis in the NSE.. it's sometimes very much like Tom Mboya at 5.45pm on Monday.

anyway... go buy.. how else would you really know that it is good or bad... and what better way to start investing..

1 comment:

The Alpha Quadrant said...

PE Share Price / Earnings Per Share

PEG - PE/Earnings Growth

Look at http://www.investopedia.com
for more info.