In a few weeks’ time Owen Silavwe the CEC Plc Chief Executive Officer will be paying a 2 cents a share in dividend for an energy company worth close to 19 cents a share after delivering a remarkable performance in 2021, a performance once threatened to extinction by political risks in the last cycle.
Barely a year ago the Copperbelt Energy Corporations (CEC Plc) earnings were dented by a $90 million impairment charge following a Statutory Instrument (SI.57) declaring the state power utility as common carrier. This pronouncement in the previous political regime brewed uncertainty in the energy industry which threatened the strategic existence of Lusaka Securities Exchange listed CEC and was forecast to extend investment risks to future entrants in the power generation market. This development was adding onto the already existing delayed energy reforms such as the long awaited Cost of Service Study (CSS) whose results would determine what the optimal and cost reflective tariff levels would be to make investment in the faculty attractive.
READ ALSO: Zambian High Court, rules in favor of CEC Plc, renders ‘Common Carrier’ Energy Statute Null and Void
According to audited financials for the year 2021, despite CEC’s 8.0% ebb in total revenues to $324 million, the energy generations Profit After Tax (PAT) soared just under 970% supported by impairment right back following certainty posed by reversal of the SI57 after Zambia saw shift in political regime post the August polls. The LuSE listed energy distributor recorded an 87% decline in credit provisions as political risks subsided offset in part by a 20% hike in cash costs and a 61% rally in capital expenditure.
CEC took a positive cue from 2% growth in mining related energy demand but remains weighed by an outstanding $168 million debt owed by Konkola Copper Mine for power supplied prior to liquidation proceedings.
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CEC stock yielded at 12% return on its dividend at $0.02 to be paid out while the companies price earnings ration headlined x6.12 times and earning per share of $0.032.
MINING BULLS TO FUEL ENERGY DEMAND
Looking ahead, the energy producer sees more bulls than bears supported by a 5% cut on corporation tax as per 2022 budget pronouncement which will allow sufficient liquidity for re-investment. The revocation of SI.57 remains the biggest game changer for the power producer breeding certainty and widening investment prospects while a stronger anticipated mining growth as the copper producer targets 3 million metric tons in the next 5-10 years, signals demand bulls of CEC. The mines currently consume 55% of power generated into the Zambian grid. Deliberations with ZESCO Ltd the national power utility concerning the expired Bulk Supply Agreement (BSA) have commenced and successful conclusion will spell stability for the two parties around an earlier rift they faced.
READ ALSO: Energy price risks the biggest downside to mining in 2020,as CEC and ZESCO divorce in 1Q20
Copperbelt Energy Corporation will look to tap into the green bond market to fund some of its renewable and sustainable power generation initiatives. Despite the positives, CEC still is the labyrinth of threats such as climate change effects impacting precipitation which could likely impact hydro power generation while a forecast strong dollar environment could have implications on the asset and liability posture of the company’s balance sheet. The recent spike in crude will have an impact on the operating costs of the energy entity.
The Kwacha Arbitrageur.
