Hubco earnings expected to jump by almost 50%

The country’s second largest power producer, Hub Power Company, is expected to announce its 2010 financial results.

KARACHI: The country’s second largest power producer, Hub Power Company, is expected to announce its financial results for the whole fiscal year 2010 on Aug 9, 2010. The company’s earnings are expected to grow by almost 50 per cent; analysts at BMA Capital and Topline Securities expect that it will post earnings of Rs4.85 to Rs4.96. They expect a final dividend of Rs1.5 to Rs2.2 is expected; which would take the cumulative dividend; payout for the whole of the fiscal year of 2010, to Rs4 to Rs4.7 per share.

Hubco is offering dividend yield of 14 and 16-17 per cent for the fiscal years 2011 and 2012 respectively, according to analysts at both brokerage houses.

“With increase in discount rate by 50bps, our target price is revised down to Rs40 from Rs42 per share,” said Topline Securities analyst, Farhan Mahmood.

The bottom line growth for the company is based on the return on equity; which has gone up by 31 per cent on a yearly basis, according to BMA Capital’s analyst Nurali Barkatali.

The company’s higher earnings in the fiscal year of 2010 are primarily due a seven per cent average devaluation in the Pakistani rupee compared to last year, production bonus and a higher tariff profile.

Moreover, slight net benefit of interest income (on Wapda receivables) over financial expenses (on short term borrowings & payables) is also expected to improve earnings, according to Mahmood. Hubco records income as markup on overdue receivables from Wapda at discount rate of plus two per cent according to the tariff agreement.

Delay of Narowal project to dilute earnings slightly

Narowal project’s plant was earlier expected to be commissioned by March 2010. This has been delayed till September 2010. With the delay from planned date being due to the EPC contractor, the company will claim some damages from the contractor. However, the maximum negative impact on Hubco’s bottom-line could be around Rs0.23 per share; Rs0.12 in the fourth quarter of the year, as the company is required to pay liquidated damages to the Wapda; its power-purchaser, at the rate of $17,800 per day.

Moreover, in light of recent floods throughout the country Hubco plants and sites are safe. Hence the two plants which are under the construction phase i.e new 84MW Laraib hydel plant (in Azad Kashmir) and 214MW oil fired Narowal sites are secure.

Lucky expected to book lower profits

Lucky Cement is expected to book profits of Rs3.4 billion for fiscal year 2010 compared with last year’s Rs4.6 billion, according to JS Global Capital.

The company is also expected to announce a final cash dividend between Rs2.5 and Rupees 3 per share. The cement company will announce its results for fiscal year 2010 on August 10.

Despite an increase of 12 per cent in the company’s offtake on yearly basis, lower selling prices during the year are likely to drag down net sales by 7 per cent to Rs24.4 billion, wrote JS Global Capital analyst Atif Zafar in the company research report.

However, lower cost per ton owing to the 28 per cent decline in average coal prices should slightly mitigate the negative effect of fall in selling price, added Zafar.  Hence, gross margin is expected to deteriorate by 231basis points to 35 per cent from 37.3 per cent earlier, predicted Zafar.

Published in The Express Tribune, August 7^th, 2010.