Company Reports

CKI Holdings’ and Power Assets Holdings’, or PAH, purchase of the holding company of Northern Ireland gas distributor Pheonix Natural Gas Ltd, or PNGL, for GBP 312.6 million is decent, in our view, but should only lift annual earnings by around 1% for CKI and PAH. Our fair value estimates for both companies are unchanged, remaining at HKD 53.30 per share for CKI and HKD 48.60 per share for PAH. Both companies are trading in 4-star territory, but we prefer CKI as we expect dividend growth versus PAH’s flat dividends. CKI is yielding 5.9% at the current share price and PAH at 6.3%.

Power Assets Holdings, or PAH, posted in-line 2023 earnings of HKD 6.0 billion, with dividend per share stable at HKD 2.82. An attractive dividend yield of 6.1% should support its share price, but we see limited growth in the absence of acquisitions. PAH and its parent, CKI Holdings, have not made a significant purchase since 2017. However, management is more upbeat than it has been in recent years that the current environment should yield some material purchases. Until these materialize and with minimal changes to our earnings forecast, our fair value estimate is little changed at HKD 48.60 per share.

Power Assets Holdings, or PAH, in the absence of acquisitions, is likely to see slow earnings growth and stable cash flow that should maintain its dividend payout. PAH’s key utility assets include UK-based power and gas networks as well as Australian utility distribution companies. Together, the UK and Australian assets made up 66% of profit in 2023. As a result, PAH’s earnings and fair value estimates are sensitive to currency fluctuations. A weaker GBP has impeded earnings gains; however, we don’t think the lower translated income will materially impact dividend payouts given PAH's net cash position. We think PAH's dividend is likely to be flat at HKD 2.82 per share during our five-year projected period.

We keep our fair value estimate for Power Assets Holdings, or PAH, at HKD 48 following slight tweaks to our profit forecast to reflect a somewhat disappointing 2024-28 development plan and to incorporate new foreign exchange projections. Separately, a restructure at UK Rails that involves the issuance of new shares to PAH is a noncash transaction. Both events have a limited impact on our cash flow projections for the company. PAH is slightly undervalued presently, with a dividend yield of 6.7% at the current share price. Our dividend estimate is unchanged at HKD 2.82 per share. While we think PAH's share price should find support at the current level, we see limited earnings growth in the absence of acquisitions and the lack of growth in its dividends leaves us with a preference for its parent, CKI Holdings.

Power Assets Holdings, or PAH, in the absence of acquisitions, is likely to see slow earnings growth and stable cash flow that should maintain its dividend payout. PAH’s key utility assets include U.K.-based power and gas networks as well as Australian utility distribution companies. Together, the U.K. and Australian assets made up 67% of profit in 2022. As a result, PAH’s earnings and fair value estimates are sensitive to currency fluctuations. A weaker GBP has impeded earnings gains; however, we don’t think the lower translated income will materially impact dividend payouts given PAH's net cash position. We think PAH's dividend is likely to be flat during our five-year projected period.

With first-half performance tracking our full-year estimate, we make minimal change to our earnings forecast for Power Asset Holdings, or PAH, maintaining our fair value estimate at HKD 48. We think the market may be disappointed that PAH’s first-half 2023 earnings of HKD 2.96 billion is up a subdued 3% year on year, but we expect a stronger second-half performance with currency tailwinds to help. We maintain our view that 2023 net profit will be around HKD 6.0 billion leading to EPS growth of 6.9%. Interim dividend is unchanged, as expected. We think PAH remains relatively attractive, trading at around a 19% discount to our fair value estimate and on a forward dividend yield of 7%.

We lower Power Assets Holdings’, or PAH’s, fair value estimate to HKD 48 from HKD 49 due in part to the weakness in associate HK Electric’s, or HKE’s, market value. Although on first glance, 2022 results disappointed, this was mainly due to mark-to-market inflation hedges that dampened United Kingdom-derived contributions. As a result, our cash flow assumptions are largely unchanged pending additional tweaks on the release of its full accounts. We continue to forecast unchanged dividends at PAH of HKD 2.82 annually in our explicit forecast period. PAH currently trades at a relatively attractive 6.5% dividend yield which we think will continue to support its share price.

Power Assets Holdings, or PAH, in the absence of acquisitions, is likely to see slow earnings growth and stable cash flow that should maintain its dividend payout. PAH’s key utility assets include U.K.-based power and gas networks as well as Australian utility distribution companies. Together, the U.K. and Australian assets made up 67% of profit in 2022. As a result, PAH’s earnings and fair value estimates are sensitive to currency fluctuations. A weaker GBP has impeded earnings gains; however, we don’t think the lower translated income will materially impact dividend payouts given PAH's net cash position. We think PAH's dividend is likely to be flat during our five-year projected period.

Power Assets Holdings', or PAH’s, share price fall of 19% since end-August is unwarranted in our view, given the company’s free cash flow is largely shielded from recession risks, rising costs, and interest rates. The group only reports on a half-yearly basis, but our recent check with management indicates that business is stable with free cash flow still healthy. The bulk of its earnings come from regulated power assets that enjoy a cost passthrough. Currency headwinds, however, will lead to lower Hong Kong dollar-translated income, but we are confident that PAH is able to maintain its full-year dividend of HKD 2.82 per share, representing an attractive 7.4% yield. In addition, PAH is buying back its shares with plans to acquire up to 5.5% of its float annually. This should provide support in the face of selling pressure. At the current HKD 38 share price level, shares are trading at around a 22% discount to our fair value estimate, which we have cut to HKD 49 from HKD 53 to account for the lower translated values.

Power Assets Holdings, or PAH, in the absence of acquisitions, is likely to see slow earnings growth and stable cash flow that should maintain its dividend payout. PAH’s key utility assets include U.K.-based power and gas networks as well as Australian utility distribution companies. Together, the U.K. and Australian assets made up 79% of profit in 2021. As a result, PAH’s earnings and fair value estimates are sensitive to currency fluctuations. A weaker GBP has impeded earnings gains; however, we don’t think the lower translated income will materially impede dividend payouts given PAH's near equal cash:debt position. We think PAH's dividend is likely to be flat with only a slight rise possible.

We lower our 2022 earnings estimates for Power Assets Holdings, or PAH, by 6.6% given continued currency headwinds and an inflation hedging loss at 36% owned Wales & West Utilities, or WWU, but there is negligible impact to our fair value estimate, which remains at HKD 53. Interim net profit was up 14%, which largely reflects the absence of the one-off charge for deferred taxes that hurt year-ago contribution from UK Power Networks, or UKPN. In total, PAH's first half performance was within our expectation. PAH is trading at a slight discount to our fair value estimate and we see support from a stable dividend of HKD 2.52 that is yielding 5.6% at the current HKD 50.65 share price level. We continue to prefer parent CKI Holdings, due to potentially larger upside.

We refresh our cash flow model to reflect CKI's and Power Assets', or PAH's, publication of their 2021 annual reports with the full cash flow statements. There is minimal change to our earnings estimates and our fair value estimates remain at HKD 62 for CKI and HKD 53 for PAH. Share prices of both CKI and PAH have outperformed the Hang Seng Index year to date, which we believe is due to their defensive attributes. Both CKI and PAH are able to pass on higher costs to customers as the bulk of earnings are regulated. We note U.K. gas and electricity regulator Ofgem raised the price cap on utility bills by 54% as of April 1. We currently have a preference for CKI over PAH given better upside to its fair value but we note that CKI has slightly greater sensitivity to currency headwinds.

Power Assets Holdings’ 2021 performance was a tad shy of our expectations with contributions from its Australian assets slightly weaker than we expected. Otherwise, other regions showed in line contributions and we make only minor adjustments to our profit forecast.

Power Assets Holdings, or PAH, in the absence of acquisitions, is likely to see a stable share price, supported by a sustained dividend payout. PAH’s key utility assets include U.K.-based power and gas networks as well as Australian utility distribution companies. Together, the U.K. and Australian assets made up 79% of profit in 2021. As a result, PAH’s earnings and fair value estimates are sensitive to currency fluctuations. A weaker GBP has impeded earnings gains; however, we don’t think the lower translated income will materially impede dividend payouts given PAH's near equal cash:debt position. We think PAH's dividend would be flat at worst with marginal rises probable.

Power Assets Holdings, or PAH, has seen limited reaction to news that 40% owned UK Power Networks, or UKPN, may be sold at a significant gain. Besides the drag from the Russia-Ukraine war, there is uncertainty over whether the sale could leave a profit void. The group has confirmed that it is in discussions with potential bidders but has not indicated whether the Bloomberg report that the sale could value UKPN at GBP 15 billion, which is almost double what we reflect in our valuation of PAH, is accurate. Given the recent transaction values, a price that is at least 1.6 times the regulated asset value, or RAV, would not be surprising, but GBP 15 billion would appear to be well above this benchmark. The news, nonetheless, supports our view that PAH is trading below our fair value estimate of HKD 53 per share as it implies possibly higher valuations for its other U.K. assets.

We make minor tweaks to our profit forecast for Power Assets Holdings, or PAH, with lower China and Hong Kong income in second-half 2021 but free cash flow stays healthy. The net impact is lesser than a 3% cut in our 2021 net profit forecast to HKD 6.46 billion and marginally higher earnings in subsequent years. We still expect a 22% rebound in 2022 net profit to HKD 7.89 billion in the absence of additional charges. To recap, PAH is recording around HKD 551 million in deferred tax charges, which was already captured in its first-half 2021 results, related to the rise in the corporate tax rate in the U.K. to 25% from 19%. Free cash flow will be healthy due to the completion of the Husky Midstream pipeline expansion that raises dividend contribution from the asset. Going into 2022, our fair value estimate rises to HKD 53 from HKD 52 and shares remain attractive for investors looking for stable income. PAH is yielding around 5.7% and we expect dividends to remain flat at worst.

Power Assets Holdings, or PAH, in the absence of acquisitions, is likely to see a stable share price, supported by a sustained dividend payout. PAH’s key utility assets include U.K.-based power and gas networks as well as Australian utility distribution companies. Together, the U.K. and Australian assets made up more than 70% of profit and around 33% of cash flow in 2020. As a result, PAH’s earnings and fair value estimates are sensitive to currency fluctuations. A weaker GBP has impeded earnings gains; however, we don’t think the lower translated income will materially impede dividend payouts given PAH's near equal cash:debt position. We think PAH's dividend would be flat at worst with marginal rises probable.

If not for a non-cash deferred tax charge of HKD 551 million, no-moat Power Assets Holdings’, or PAH’s, interim profit would have rebounded 35% year on year. Instead, interim profit of HKD 2,509 million is up just 11%. The charges hit income from U.K. regulated assets but do not impact cash flow contributions during the period. As a result, our fair value estimate for PAH is unchanged at HKD 52. Interim dividends were raised by 1 Hong Kong cent, a small surprise, pointing to a slight rise in full year dividends that we already assumed. We think PAH and its parent CKI Holdings are attractive at their current price points, but CKI has slightly better growth prospects with five-year EPS CAGR at 8.8% versus PAH’s 5.7%. This excludes the potential for incremental profit from bolt-on acquisitions made by CKI’s non-regulated businesses.

We keep our fair value estimate on no-moat Power Assets Holdings, or PAH, at HKD 52 ahead of its interim results due out in early August. We think the shares are still attractive and we are confident that PAH's cash flow outlook remains healthy. We think PAH's regulated earnings, with inflation led costs to be passed on to customers, and the group's low average cost of debt, make the company a decent hedge against transitory inflation risks that are likely to weigh on the market over the next 12 months. PAH is in a slight net cash position.

Power Assets Holdings, or PAH, in the absence of acquisitions, is likely to see a stable share price, supported by a sustained dividend payout. PAH’s key utility assets include U.K.-based power and gas networks as well as Australian utility distribution companies. Together, the U.K. and Australian assets made up more than 70% of profit and around 33% of cash flow in 2020. As a result, PAH’s earnings and fair value estimates are sensitive to currency fluctuations. A weaker GBP has impeded earnings gains; however, we don’t think the lower translated income will materially impede dividend payouts given PAH's net cash position. We think PAH will be able to maintain its 2020 DPS of HKD 2.81.