NPL June 2024 target price raised to Rs. 42 per share

AKD Research has just released an update on its coverage of Nishat Power Ltd (NPL) stock. The research house has raised its June 24 NPL target price to Rs. 42 per share. Here are the key points from the report:

Favorable Government Measures

The Government of Pakistan (GoP) has been implementing measures to maintain austerity by shifting power generation costs and losses to end-users. Additionally, it has provided fiscal support to the power sector through subsidies, which amounted to 9.5% of FY23 tax receipts. These actions have eased the burden on the sector as a whole.

Robust Power Generation Performance

NPL’s power generation performance has been relatively robust compared to other fuel oil-based plants, especially during periods of fluctuating Residual Fuel Oil (RFO) demand. The plant’s average utilization rates were 47% and 32% during FY22 and FY23, respectively, outperforming the industry’s average generation factor of 25% and 10% during the same periods.

Strong Financial Position

As of 1QFY24, NPL holds a net receivable position of PKR 17.1 billion (PKR 48.5 per share), which provides significant protection in the current high-interest rate environment, given its minimal leverage. Despite challenges, the company’s dividends are expected to expand in the future.

Investment Outlook

Considering NPL’s strong fundamentals and future prospects, the research recommends a ‘BUY’ stance on Nishat Power Ltd with a target price of PKR 42 per share by June 2024. The current trading position of the company indicates a substantial discount compared to its net receivables position and the Net Present Value (NPV) of future capacity payments.

NPL is expected to bill PKR 4.40 billion towards the power purchaser for capacity charges during FY24, ensuring conformity of cash flows amidst declining generation demand. However, risks such as unexpected increases in circular debt and deviations from future plans may affect the company’s fundamentals and distribution capacity.

Conclusion

In conclusion, Nishat Power Ltd presents a promising investment opportunity with potential upside, supported by its strong financial position and favorable government measures. Despite risks, the outlook remains positive, with expected dividend yields of 29% and 30% for FY24 and FY25, respectively, culminating in a total return of 80%.

Disclaimer:
The information in this article is based on research by AKD Research. All efforts have been made to ensure the data represented in this article is as per the research report. This report should not be considered investment advice. Readers are encouraged to consult a qualified financial advisor before making any investment decisions.