• Wednesday, April 24, 2024
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Transcorp Power shares rise 33% in three days after listing

Transcorp Power grows first quarter PBT by 775%

The share price of Transcorp Power Plc increased by 33 percent in the first three days after listing on the Nigerian Exchange Limited.

Defying high yields in the fixed income market which had triggered a rout, Nigeria’s equities market again commenced its journey northwards after Transcorp Power listed by introduction its 7.5 billion shares at N240 per share, which added over N1.8 trillion to the equities market capitalisation.

In their initiation of coverage report for Transcorp Power, Esther Otusanya, analyst at Meristem said: “Our assessment of the firm’s financial performance reveals a resilient ascent marked by consistent revenue growth and strategic asset optimisation.

“Looking ahead, we anticipate sustained revenue expansion for Transcorp Power, driven by existing capabilities and emerging opportunities. The company’s strategic initiatives, international market presence, and focus on operational efficiency position it for long-term success. We arrived at a fair value of N2.289 trillion for Transcorp Power Plc by using a blend of various valuation models, considering the company’s growth potential, risks, and overall market factors.”

Transcorp Power’s equities valuation increased to N2.395 trillion on Wednesday from N1.8 trillion when it listed.

In early trading on Wednesday, investors’ continued interest in Transcorp Power pushed its share price to N319.4, from preceding day’s N290.4, reaching a maximum 10 percent daily rise.

The listing by introduction implies that existing shareholders in the company are offering a portion of their ordinary shares in order to create liquidity in the market and enable institutional investors and members of the investing public to acquire shares in the company.

CardinalStone Research analysts said Transcorp Power is a good buy, adding that their target price for the stock is N323.64.

“We initiate coverage on Transcorp Power Plc with a 12-month target price and projected market capitalisation of N323.64 and N2.4 trillion, respectively. Our target price implies a price return of 22.6 percent and a buy recommendation on the stock,” they said, adding that their outlook on the stock is premised, among others, on projected improvements in return metrics.

They identified risks to their expectations to include: risk of naira devaluation, risk of competition, risk of unfavourable changes in interest rates, and risk of higher trade receivables balances.

Transcorp Power, a subsidiary of Transnational Corporation Plc, is a player in Nigeria’s upstream power sector, boasting an installed capacity of 972MW.

Before the listing, the company’s shareholding structure was as follows: Transcorp Plc (51.6 percent), Rich Point Limited (33.3 percent), Woodrock Energy Resources Limited (7.4 percent), and others (7.7 percent).

“We initiate coverage of Transcorp Power Plc (TPP) with a BUY recommendation and a target price of N288.36. Our valuation utilises the discounted cash flow methodology and reflects our belief in TPP’s immense growth potential, driven by several key factors including favourable market dynamics and possessing existing infrastructure to capitalise on opportunities within the market,” said research analysts at Lagos-based Vetiva on Monday.

“With a five-year period for projected free cash flows to firm and a sustainable long-term growth of 9 percent, we estimate a discounted terminal value of N1.9 trillion in 2027, taking enterprise value to N2.2 trillion. After accounting for a net debt of N27 billion, we value Transcorp at a one-year target price of N288.36,” they said.

According to Vetiva Research analysts, Transcorp Power has demonstrated a consistent track record of impressive financial performance, exhibiting both revenue growth and profitability expansion over the past five years.

They said: “This robust financial health positions the company for continued success and further investments. Revenue growth has been particularly impressive, with TPP achieving a double-digit Compound annual growth rate of 10 percent over the past five years.

“This growth is primarily driven by strong demand for electricity and the company’s increased output. TPP has consistently improved its power generation capacity, leading to a higher volume of electricity sold and contributing to its topline expansion.

“Furthermore, TPP’s profitability has also shown positive trends. The company’s earnings before interest, taxes, depreciation, and amortisation margin has steadily risen, reaching a commendable 51 percent in the first nine months of 2023.”

Jude Chiemeka, acting CEO of NGX, said that with Transcorp Power boasting a remarkable market capitalisation of over N1 trillion, marking the first listing of the year, underscored the pivotal role NGX plays in shaping Nigeria’s economic landscape.

He added that NGX is not just a platform for trading stocks, “It is a catalyst for economic growth and development, and we recognise our responsibility in supporting the government’s privatisation efforts, particularly within the energy sector”.

“The listing of Transcorp Power exemplifies our belief that NGX serves as a viable platform for the privatization of energy companies, driving efficiency, innovation, and sectoral growth,” Chiemeka said.

Peter Ikenga, Transcorp Power’s managing director/CEO, said: “This is a testament to our unwavering dedication to powering Nigeria’s growth. We embark on this new chapter with a sense of purpose, innovation, and a commitment to continue to deliver sustainable energy solutions in Nigeria and beyond.”

Transcorp Power operates the Ughelli Power Plant in Delta State, with an installed capacity of 972MW. At the time of acquisition, the plant had an available capacity of 160MW. Transcorp Power invested and increased the available capacity to 680.83MW (a 227 percent increase) within four years of acquisition, surpassing the 5-year target of 670MW set by the Bureau of Public Enterprises.