Transcorp gets BUY ratings on strong operating profit

Transnational Corp. of Nigeria’s strong operating profit earned it a BUY rating on its stocks despite a mirage of challenges holding back the growth of firms operating in Africa’s most populous nation.

Analysts say the company’s well diversified revenue base is responsible for its strong growth sales, an impressive performance that means there is silver ling for shareholders.

For the first nine months through September 2016, Transcorp’s operating profit increased by 4.98 percent to N11.58 billion from N11.03 billion in the corresponding period of last year. Sales increase surged by 37.80 percent to N41.92 billion, thanks to the contributions from its Energy sent out unit.

“We maintain our BUY rating on the stock on account of the improvement in EBIT,” said FSDH Group, in an emailed note to BusinessDay.

“Growth in revenue compared with Q3 2015 is higher than the inflation rate. Generating capacity for Transcorp Power Limited declined significantly as a result of the deteriorating gas supply situation and load restrictions from the national grid,” said analyst at FSDH.

The shortages and economic downturn forced Transcorp to delay plans to build the biggest power in the country. Companies are operating in a tough environment as a severe dollar shortage, currency volatility and gas shortages caused by attacks on oil facilities by the Niger Delta avenger continues to hurt profit.

Adding to concern is the effects of rising inflation on consumer purchasing powers.

Nigeria’s economy has contracted by 2.1 percent in the second quarter on the back of lower oil National Bureau of Statistics (NBS). The International Monetary Fund (IMF) forecast that the economy will shrink by 1.80 percent by 2016, the worst recession in 25 years.

The central bank adopted a flexible exchange rate regime in June after 15 month of currency peg that saw investors flee for fear of not been able to repatriate their money. The adoption of the new regime saw the naira loss 40 percent of its value against the U.S. currency.

Emanuel Nnorom, President/CEO of Transcorp said the loss recorded in the quarter was from unrealised foreign exchange loss due to impact of material devaluation against the US Dollars.

Since devaluation loss is an exceptional or one off item, the company is expected to record a profit as at year end.

The company in 2014 said it would raise $1 billion to build a 1,000-megawatt gas-fired facility. Two years earlier, it bought the Ughelli plant in the hydrocarbon-rich Niger River delta from the government and more than doubled its output to 700 megawatts

Transcorp share price closed at N0.92 as of 1:30 pm on the floor of the exchange while market capitalization was N37.40 billion. Year to date, the company shed -36.56 percent, compared to -4 percent NSE ASI.