Dear Clients,

The Hub Power Company (HUBC) has informed its investors of acquiring the operations of ENI in a JV with ENI’s employees (50:50). While the transaction price has been agreed upon, HUBC is unable to convey it likely because of a non-disclosure agreement. This potential investment marks HUBC’s initial venture into the upstream energy chain.

ENI’s operations overview

ENI presently has stakes in 7 operating fields with its primary stake in Bhit (40%) and Badhra (40%). Based on the average levels of 2QFY21, ENI’s oil production stood at 83bopd and its gas production stood at 77mmcfd. On present oil prices, ENI’s annual profits are projected at PKR 125mn for oil and PKR 5,425mn (HUBC’s stake: PKR 2.09/sh) for gas. It is, however, important to note that its 2 major fields are nearly depleted with an estimated reserve life of 3.5 years for Bhit and 2.0 years for Badhra.

Potential investment size

As mentioned, HUBC is yet to disclose the investment’s size. We, however, have estimated the project’s value based on the projected flows, estimated Capex and recoverable reserve size. We estimate the value of ENI’s venture to stand at PKR 15.6bn with HUBC’s stake projected at PKR 7.8bn (PKR 6.0/sh).

We continue our preference for HUBC within the IPPs space

The recent investment plan further diversifies HUBC’s revenue stream and solidifies its growth story. Based on our estimates, ENI’s venture is estimated to contribute 8% towards its FY22 earnings (PKR 26.3/sh). We maintain our BUY stance for HUBC with a Jun21 TP of PKR 139/sh and will revise our valuations once the actual investment size is revealed.

Regards,
KASB Research