Analysts in 2019 warned that Kenya Power's corporate governance challenges and reliance on debt financing could undermine its stock performance at the Nairobi Securities Exchange, despite the utility trading at a discount.
The utility reported a 16% decline in half-year profit to Sh2.46 billion for the period ending December 2018, citing increased expenses as a primary factor. Dye & Blair Investment Bank's Linet Muriungi noted the company's price-to-earnings and price-to-book ratios of 6.3 and 0.1, respectively, lagging behind sector averages of 5.3 and 0.8.
Muriungi emphasized concerns over political interference, high leverage, and working capital management issues stemming from government receivables. "We remain wary of Kenya Power’s current corporate governance issues due to excessive exposure to political figures, high leverage ratios, poor working capital management capacity primarily due to ballooning accruals and receivables due from government entities," she stated.
Kenya Power's share price fell 7.7% year-to-date, trading at Sh4.02. Genghis Capital analysts urged debt restructuring to address rising financing costs, which climbed 23.5% to Sh4.02 billion during the period. The company's total debt reached Sh115.87 billion, with Sh16.8 billion due within 12 months.
Analyst Gerald Muriuki of Genghis Capital acknowledged interim management's efforts to resolve past challenges but stressed the need for immediate action on working capital, cash flow, and debt levels. The utility plans to cut capital expenditure as it approaches its universal electricity connectivity target, while recent tariff hikes and a more favorable energy mix are expected to improve revenue and reduce power purchase costs.
