05 March 2004	Friday	13 Muharram 1425

KARACHI, March 4: On Thursday morning, Hub Power Company Limited (Hubco) announced interim cash dividend at Rs1.60 (16 per cent) for the year ending June 30, 2004.

The interim payout announced by the Hubco board was better-than- expected, and consequently the price of the company stock gained 10 paisa to close at Rs37.35, with trading seen in 16.5 million shares on Thursday.

On the ruling market price of the stock, interim payout gives yield at eight per cent on annualized basis. Full year possible payout by the company has been variously estimated by analysts to range between Rs3.30 and Rs4.60.

On a median of Rs4 per share, the cash yield would work out at 10 per cent on the current price. This is higher than the current market yield, which is seven per cent.

The reason most market pundits were putting the interim dividend at the lower side or around Rs1.40 a share was that the company was supposed to be in a tight cash flow situation.

Hubco's half year accounts ended December 31, 2003 had positioned cash and bank balances at Rs5.4 billion. Balance sheet also showed the current maturity of long-term loans at Rs5.95 billion.

Since the company had forward cover for its US dollars repayments in the sum of Rs2.1 billion, Hubco was left with Rs1.6 billion for distribution as dividend.

The board, thus seemed to have showed generosity in paying out larger amount in dividend, contrary to its past practice of distributing both interim and final cash dividends at slightly lower than the available cash for distribution.

Thus, for the second half of the financial year 2003, Hubco carried cash and bank balances amounting to Rs6.5 billion, and after deduction of debt repayments, the available cash amounted to Rs2.6 billion, equivalent to Rs2.26 per share.

The Hubco board disbursed cash at Rs2.10 per share. Similarly, for 1H03, the available cash stood at Rs4.1 billion or Rs3.56 per share, out of which the company disbursed Rs3.30 per share in dividends. Cash available for distribution in the first and second half of 2002 stood at Rs7.22 and Rs4.42, respectively. Dividends were paid out at Rs4 and Rs3.60 per share.

It might then be wondered why the board decided to deviate from its historic pay out records viz-a-viz the cash available for distribution? But it is possibly one of the features of Hubco - the largest independent power producer - to spring surprises.

Up until 2003, it was understandable as to why the company made huge dividend payouts. That was due to inflow of comfortably high level of earnings and receipt of cash from Wapda on settlement of disputed sums of arrears.

But those days are long since over and the company has to feed shareholders lesser sums in dividends. Hubco also was believed to be saving cash for investment in capital expenditure programme aimed at beefing up the power generation plant so as to be prepared to meet any unforeseen contingency. Given the nature of its business - power generation - such investment looked to be a prudent move.

The recently released figures for the first half of the financial year 2004 showed Hubco's earnings to have dropped by 11.5 per cent compared to the corresponding period of the previous year.

During the period, turnover plunged by 43.5 per cent to Rs6.3 billion, from Rs9.0 billion in the comparable period of FY2003. Operating profit of the company fell to Rs3.7 billion, from Rs4.2 billion.

Higher availability of cheaper hydropower electricity in the country due to heavy rainfall and low interest income earned by the company were understood to be the major reasons for drop in earnings.

The share in Hubco has under-performed the market in recent days, due mainly to the gloomy forecasts about possible rate of interim cash payout. Most market gurus are now placing the 12-month target price of Hubco to range between Rs35 and Rs40. Investors, who might want to accumulate, would possibly do so more for cash yield than capital gains.

The Hubco board announced on Thursday that the interim dividend would be paid to the shareholders whose names appear in the Register of Members at the close of business on April 4, 2004. As already announced on January 28, the books would remain closed from April 5 to 16, 2004, both days inclusive.