Energy shares gain as falling oil price lifts consumption

Energy counters at the Nairobi Securities Exchange (NSE) are trending up, boosted by the prospects of improved financial performance after favourable oil prices and expanding capacity in the power sector.

Shares of oil marketers KenolKobil and Total are up 15.5 per cent and 12.5 per cent respectively so far this year at Sh10.05 and Sh27. The two counters had closed last year 14 per cent and four per cent down respectively.

On the electricity side, Kenya Power and KenGen are up 17.6 per cent and 4.4 per cent respectively since the start of the year at Sh17 and Sh10.75 a share respectively.

In the full-year 2014, KenGen was the worst performing energy stock having shed 24 per cent in value, while Kenya Power’s gain was a modest 2.1 per cent.

Analysts say the financial environment for both petroleum and power companies has improved, hence investors are taking positions anticipating improved profit and revenue.

Total Kenya and KenolKobil’s margins are controlled by the Energy Regulatory Commission, but with the Mombasa refinery having been shut down, they import refined crude under the open tender system.

“Refined fuel price has dropped approximately 27 per cent, therefore we believe performance of KenolKobil and Total will be boosted by increased sales volumes owing to increased fuel consumption at affordable prices. This would explain the share price rally pre-earnings, in addition to impressive half-year performance,” said Genghis Capital analyst Silha Rasugu.

He added that for Kenya Power, the increased tariffs provide financial security at a time when the company is increasing capital expenditure to expand capacity and improve grid efficiency.

The company last week reported a 38.5 per cent rise in half-year net profit to Sh4.17 billion with higher tariffs resulting in electricity sales growing 40 per cent to Sh37.6 billion.

READ: Higher tariffs lift Kenya Power profit 38pc

KenGen had lost ground last year over concerns on its increasing capital expenditure and debt amid a delay in its planned Sh50 billion rights issue.

Analysts said, however, that the commissioning of the 280 megawatts Olkaria geothermal plant gives the company an additional primary revenue driver, thus promising a positive shift in performance this year. The electricity producer is set to release first half 2015 numbers on Friday.

“We believe these will be positive riding on an expected capital allowance on new capacity. Revenue is likely to be higher as the initial 140 of the 280 megawatts was operational for at least five months,” said Standard Investment Bank (SIB) in a market update on KenGen. 

SIB analysts estimate the KenGen rights offer could see investors offered three for every one share held, with a price of about Sh7.58, adding that while this would be significantly dilutive, improved profitability would provide the counterbalance for the share.

While the four Kenyan companies have seen improved prices this year, cross-listed Ugandan power utility firm Umeme has seen its price erode by five per cent this year to Sh20, coming from a 61.5 per cent gain in 2014.

The counter’s price correction results from increased trading from the free float released by the exit of private equity firm Actis last year.

“The company went through material shareholding changes last year with the exit of Actis, which may have resulted in speculative trading around the period causing the price to front run any material changes,” said Mr Rasugu.