18 May 2015
Muscat: Brokerage houses in Oman have backed Phoenix Power initial public offering by projecting a fabulous gain on listing.
Phoenix Power Co. has floated a OMR56.3 million-initial public offering on May 10, which will close subscription on June 8.
"We hold a positive view on the initial public offering of Phoenix Power Company owing to defensive business model of the company and its steady operating cash flows supporting consistent dividend payments," said a research note from Al Maha Finance Services.
"We value Phoenix Power at OMR0.144 per share and recommend investors to 'subscribe' to the offer with an upside potential of 30.5 per cent from the issue price of OMR0.110, in view of the expected listing gains and attractive dividend yields," added the research note.
Al Maha note also said that power firms in Oman are known for offering compelling listing gains in their initial public offerings. Besides the listing gains, these companies also have a proven track record of value creation, offering returns in the form of capital appreciation over a period of time.
"The preceding five listed power companies made a value creation of around OMR260 million to the investors. Successful listing of the power firms is likely to attract and encourage investors to participate in upcoming IPO for listing gains as well as for long term returns."
The defensive business model and steady cash flows have helped the Omani power companies to pay regular cash dividends to investors, offering a superior dividend yield as compared to the market. Phoenix Power Company has projected consistent dividend payments, offering an attractive average dividend yield of above 7 per cent at the issue price of OMR0.110 per share.
"We estimate a fair value of 129 baisas for Phoenix Power, based on a two-stage discounted cash flow valuation model that assumes a higher discount rate for the company post PPA termination. Using dividend yield as a yardstick, the stock can reach a target of 140 baisas per share on listing," added the Financial Corporation (FinCorp).
The initial public offering promises investors an attractive annual dividend yield of 7.3 per cent between 2015 and 2019 and given the interest rate environment, it is very attractive. This compares with an average dividend yield of 5.9 per cent for other power companies listed on the Muscat Securities Market (MSM). The first dividend will be paid in July, 2015, and twice yearly thereafter.
The share offer is available for both Omanis and foreign residents. The primary issue is divided into two categories, on the basis of size of subscription.
As many as 65 per cent is reserved for the first category, who apply for shares between 1,000 and 600,000, while the second category is institutions and high-net worth individuals who apply for shares between 600,100 and 51,191,000.
As the largest power plant in Oman, the contracted plant's power capacity of 2,000 megawatt represents 27.8 per cent of the main interconnected system.
The company has entered into a 15-year power purchase agreement with Oman Power and Water Procurement Company, which will expire in 2029.
Phoenix Power is offering 511,910,511 shares, representing 35 per cent of the issued share capital of Phoenix Power. The shares will be priced at 110 baisas per share, inferring a total offer size of OMR56.3 million and a market capitalisation on listing of OMR161 million.
© Times of Oman 2015