@the deal, g267 and others, I would caution you not to be too bullish on the possible capital gains on KPLC.
As a utility with significant impact on the cost of doing business in Kenya, KPLC will be constrained on the extent that it can raise prices.
Over the last 5 years, Profit growth for KPLC has been 29.47% in 2006, 4.49% in 2007, 2.74% in 2008, 82.72% in 2009 and 15.22% in 2010. 2009 was an outlier with the heavy increase in tariffs, so I would discount it. From this trend, I think that it is too optimistic to expect KPLC to grow profits by 20% in 2011.
Even with the rights issue money, it will take some time for the new projects to come on stream and start contributing profits. My bet is that we will see 2011 growth matching 2010 and then accelerating to the 20% range in 2012 "ceteris paribus".
Based on this, I would expect 2011 EPS at 2.5 (15% increase on 2010). There will be many new shares bought cheap, especially assuming the premium on the GOK rights is insignificant. This will tend to prevent a rapid rise in the price of the share. In the first 3 months of the new shares being listed, I would therefore expect it to trade at a forward PE ratio of no more than 12 and more likely in the 10-11 range.
This will keep the price in the 25-27.50 range. This is still a 28% to 41% upside on the rights price with possibilities of over 50%, if it gets to the PER of 12. If H1 2011 results are very good this equation could of course change. After the 2011 results are released, I will expect a steady increase into the 30s on account of dividends etc.
@g267, we have debated why I do not feel it is appropriate to compare KenGen's PER to that of KPLC. So I will not go into that (at least not on this already too long post).
I therefore second the deal's recommendation but for me it is a good BUY (not a VERRY STRONG BUY.)