Transcorp’s solid profit position attributable to diversified investment base

Transnational Corp. of Nigeria Plc, which has interests ranging from agriculture to oil, maintained its profit position as earned N5.88 billion in the third quarter of the year  amid unpredictable and tough operating environment.

The impressive performance of Transcorp is attributable to the company’s well diversified investment base.

A well diversified investment base means the company is not putting all its eggs in one basket but spreading its investment in key sectors of the Nigeria economy with a view to maximizing the value of share holders.

The most diversified company is also spending copiously on power projects across a wide spectrum as it unrelentingly seeks to exploit huge reserves and gas resources available to Africa’s largest economy.

Transcorp paid $30 million for oil-prospecting lease 281, or OPL 281, following a sale by the Nigerian government in 2007. The lease holds an estimated 104 million barrels of oil reserves, 335 million barrels of probable additional reserves and about 4 trillion cubic feet of gas, the Lagos-based company said in a recent statement.

The company will produce enough gas to run its Ughelli plant to its current installed capacity of 1000 megawatt to over 3000 megawatt in the future, according to its website.

As a result of the tough operating environment and macroeconomic challenges bedeviling companies in Africa largest oil producer, Transcorp cost of sales increased by 12.70 percent to N12.47 billion in September 2015 from N10.28 billion last year. Gross profit increased by 13.92 percent to N18.17 billion.

Transcorp’s finance costs increased by 42.55 percent to N3.85 billion due to foreign exchange losses and full year debt service on acquisition of finance loan for the company’s Ugehlli Power Limited.

The increase in net finance charge affected the bottom line as net income fell by 28.81 percent while operating profit dropped by 10.93 percent.

Net profit margins reduced to 19.32 percent in 2015 as against 26.32 percent in 2014. Gross profit margin dipped to 41 percent in the period under review form 67.22 percent last year.

As a result of the significantly dip in net income, return on assets fell to 3.22 percent in September 2015 as against 4.84 percent in 2014. Return on equity dropped to 6.30 percent in September 2015 from 10.89 percent in 2014.

Transcorp total assets however increased by 7.17 percent to N182.98 billion in 2015 from N170.75 billion as at December 2014.

Analysts say there are positive prognoses for the company as earnings are expected to spike when it’s diversified investments base start to yield fruits. They also beckoned that such strategic move also gives Transcorp hedge over other companies that are not as diversified as it is.

“We expect the power business, Agriculture and the hospitality chain to continue substantially to the company’s total earnings despite prevailing sluggish growth of the Nigeria economy,” said analysts at BGL Securities, in a November 15 note.

Transcorp share price closed at N1.61 on the floor of the exchange while market capitalization was N62.34 billion.