• Wednesday, February 28, 2024
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Understanding the proposed Transcorp’s IPO

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Transcorp Hotels Plc, a hospitality subsidiary of the conglomerate, Transnational Corporation of Nigeria Plc (Transcorp Plc), filed an application for an Initial Public Offering (IPO) on the Nigerian Stock Exchange (NSE) earlier this week.

Transcorp Plc holds 88% interest in Transcorp Hotels Plc through Capital Leisure and Hospitality Limited. The remaining 12% is owned by the Federal Government of Nigeria.

The IPO of the hospitality company is for 800,000,000 ordinary shares of 50 kobo each at N10.00 per share. The conglomerate, Transcorp Plc, currently trades at N6.40 per share.

Transcorp Plc, which operates as a chaebol, the South Korean complex business holdings model, stated in its 2013 annual report that Transnational Hotels and Tourism Services Limited (THTSL) manages the hospitality arm of the conglomerate.

The hospitality arm has in its portfolio the 670-room Transcorp Hilton Hotel, Abuja and 146-room Transcorp Metro Calabar, with plans for a 300-room Transcorp Hilton in Port-Harcourt, Rivers State, and a 350-room and 200 serviced apartments Transcorp Hilton Lagos in Ikoyi.

According to the 2013 Annual Report, “When these projects are completed, Transcorp Plc will have the largest number of hotel rooms owned by any investor in Nigeria”.

Data from Hotel Partners Africa puts the value of a hotel room in Nigeria at $322,499.40.

South Africa, Kenya and Egypt all have lower values at $218,543.55, $242,755.65 and $105,542 respectively.

This is as a result of the under-supply of international standard hotel rooms in Nigeria, with Abuja and Lagos projected to have significant capacity gaps till 2018.

Valuing Transcorp Hotels Plc

The global hospitality industry is a multi-billion dollar industry with 2013 global revenue of $457bn based on data from Statistica.

Transcorp Plc’s 2013 annual report shows that THTSL, the hospitality arm, earned N15bn in revenues, which is approximately $94m.

Looking at comparables in Kenya, South Africa and Egypt, Reuters puts the Price/Earnings (P/E) ratio of the overall hospitality market in these countries at 28.14x, 28.14x and 21.12x respectively.

The average of these P/E ratios is 25.8x.

Looking at disclosures in Transcorp Plc’s 2013 Annual report, earnings (profit after tax) for THTSL is put at N4.4bn which is approximately $27m.

That translates to a valuation of $697mn based on the average of the P/E ratios.

On a per-share basis, valuation is contentious as a result of the complex holdings structure which makes it hard to determine the exact proportions of shareholdings.

Clearly, the $697mn value of Transcorp Hotels Plc derived based on average P/E is a rough overestimation, as the tourism markets in the comparable African markets are more developed, with the publicly listed firms in these markets managing a large number of varied hospitality assets in their portfolio. However, it shows the growth potential of the hospitality arm of Transcorp.

Overall, it would be interesting to see the value at which the stock debuts and the overall growth of the hospitality industry as a significant contributor to GDP.