Transcorp Power Plc’s strong, sustained stock posture and the increasing number of early investors who are interested in the company’s potential for future profits are driving up the company’s valuation.
Transcorp Power Plc’s listing value was N1.8 trillion at the start of the week; it has since been re-rated to about N2.4 trillion. On Monday, the price per share of the second power-generating business launched on the Nigerian Exchange was N240.
Nonetheless, investors who showed early interest in the company have come together in the hopes that its earnings stream will improve. Meristem Securities Limited claims that Transcorp Power Plc has continuously operated a profitable company.
In 2023, its profit before tax surged remarkably by 72.20% to reach its highest-ever level on record at N 49.28 billion, compared to N28.62 billion in 2022. The company’s profit after tax grew at its fastest pace in four years by 92.47% year on year to N33.27 billion from N17.28 billion in 2022. This sustained key profitability ratios above the four-year averages.
For 2024, analysts at investment firm Meristem Securities estimate a sustained expansion in net margin to 25.00%, signifying continued profitability. The firm estimated N2.3 trillion as the company market valuation. In its equities coverage initiation note, Meristem Securities said Transcorp Power Plc showcased a trend of relatively stable operating expenses with marginal increases from 2018 to 2020.
The investment firm said, however, in 2021 to 2023, amid an inflationary environment, administrative expenses surged by 63.34% 25.44% and 47.67% respectively. Analysts said the main drivers behind this surge were the upward revision of management fees and other operating expenses during the period.
Despite this, in 2023, the company’s earnings before interest tax depreciation and amortisation (EBITDA) expanded impressively by 67.61% year on year to N65.94 billion, compared to N39.34 billion in 2021. As a result, EBITDA margin climbed by 448 basis points to its highest on record at 48.00% from 43.54% in 2022 and its five-year average of 35.69%.
Meristem Securities stated that contrary to the decline in previous years, finance costs registered a slight increase of 8.28% year on year in 2022, primarily attributed to foreign exchange losses from dollar-denominated debt, as the Naira continued its free fall. Analysts said the impact of the Naira devaluation in 2023 was also shown in its finance cost as the firm recorded a foreign exchange loss of N8.42 billion, leading to a finance cost of N15.09 billion.
It is noteworthy that the company has effectively managed and cushioned its interest expenses, mostly funding its capital expenditure programs through reinvestment rather than taking on significant additional debt. Thus, interest coverage remains positive at 3.13x in 9M:2023, analysts stated in their coverage notes.
Additionally, the settlement of foreign currency debt obligations using proceeds from international business has prevented major currency mismatches between liabilities and income. The firm has made complete repayment of the USD215 million acquisition loan thus, reducing its exposure to dollar denominated debts, according to Meristem.
