Faida Investment Bank
The Faida Invest Bank

Long Term BUY Recommendation for KenGen

Analysts at Faida Investment Bank recommend buying KenGen shares for the long term. The advice is based on good prospects for the energy producer. It is the leading electricity producer in Kenya. As at the end of the financial year 2018, the energy firm took up 69 per cent of the market share in the energy production sector in Kenya.

KenGen has an installed capacity to produce 1,631 megawatts according to its 2018 financial report. The company has several geothermal projects that are expected to increase electricity production capacity by 721MW by the year 2020. FIB analysts expect the additional power production to increase revenue for the energy company.

Currently, KenGen has four main sources of power namely; Hydro, Geothermal, Thermal and Wind. The firm heavily relies on hydropower generation that accounts for 50 per cent of its electricity production. Geothermal, thermal and wind sources produce 32 percent, 16 percent, and 2percent of the power respectively.

KenGen is set to be Kenya’s first company to issue a green bond. It plans to use the funds to construct a solar power plant with a production capacity of 45 megawatts.

KenGen registered a marginal growth in net profits of 0.7 percent in the half year period that ended in December 2018. Its operating expenses rose by 7 percent due to high power-plant operating and maintenance costs.

The Faida Invest Bank report notes, “As the next power plant is expected to be commissioned in FY2020, we do not expect KenGen to benefit from any tax allowances in FY2019. We also note that since the company has been exempted from paying compensating tax in the Finance Bill 2018, we expect their dividend policy to be much more consistent, going forward.”

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