Transcorp Power Plc has established itself as a key player in Nigeria’s power sector, consistently delivering strong financial results that reflect its growth-driven strategy and operational efficiency.
The company reported an impressive 198% YoY growth in pre-tax profit for the first nine months of 2024, driven by robust revenue growth.
However, despite this impressive performance, the company’s stock appears to be rallying below its financial growth, prompting a key question: Is now the right time to buy Transcorp Power’s stock?
After its introduction on March 4, 2024, Transcorp Power’s stock experienced an impressive 42% year-to-date (YTD) gain by the end of Q1 2024. However, as of the close of trading on October 14, the stock’s YTD gain has decreased by 14.28%.
This raises the possibility that the market may be mispricing the stock, potentially providing investors with a chance to buy at a discount.
An analysis of the company’s performance could offer valuable insights into whether this presents a compelling opportunity or if it is a situation warranting a cautious wait-and-see approach.
Strong Financial Performance:
The recently released 9-month results for 2024 showcase a robust performance across critical metrics. Pre-tax profit soared by 198% YoY to N81.121 billion, surpassing the company’s total profit for the entire year of 2023 by an impressive 54%.
Both pre-tax and post-tax margins improved significantly, reaching 36% and 26%, respectively, which boosted return on equity (ROE) to 56%.
This strong bottom-line performance is supported by remarkable growth in revenue, primarily driven by an increase in energy sold. The volume of energy sold, a major contributor to overall revenue surged by 164% YoY, accounting for 67% of the total 153% YoY growth, which reached N223.556 billion.
Commenting on the results, Evans Okpogoro, Chief Financial Officer of Transcorp Power, expressed strong confidence in the company’s financial trajectory, stating:
“We are proud to announce significant growth across all our metrics. Our commitment to disciplined cost management and operational efficiency has not only enabled us to sustain robust margins but has also positioned us to outperform industry averages in key areas. This achievement reflects our strategic focus, and dedication to excellence, and solidifies our leadership position in Nigeria’s power sector.”
The impressive performance in the first nine months of the year suggests a sustained growth trend.
For example, achieving a return on equity (ROE) of 56% and a return on assets of 16.2%; both already higher than the full-year 2023 ROE of 52.3% and ROA of 13.5% is particularly remarkable, especially for a utility company.
Such metrics reflect not only strong profitability but also effective asset utilization, reinforcing the company’s operational efficiency.
Additionally, the company’s performance is particularly noteworthy given Nigeria’s chronic power challenges and the surging costs of operations, reflected in the rising cost of sales and a decline in gross profit margin for most companies.
Sales costs grew by 177% to N127.093 billion, primarily driven by the soaring natural gas and fuel costs, which increased by over 200%.
Despite these cost pressures, the gross profit margin remains healthy at 43%, underscoring the company’s ability to manage costs efficiently in a difficult operating environment.
To get the complete picture, it is crucial also to look at the company’s financial health and risk profile. The balance sheet expanded by 62% to N362.5 billion in the first nine months of 2024.
Liquidity is another promising indicator of the company’s financial position. The current ratio improved to 1.4x, reflecting a 13% increase, suggesting that the company is well positioned to cover its short-term liabilities with its current assets.
This is particularly vital in the energy sector, where cash flow fluctuations can arise from external factors such as regulatory changes or fuel price volatility.
Moreover, Transcorp Power’s leverage ratios reveal a prudent approach to debt management, as seen in the reductions in equity multiples and debt-to-asset ratios.
This decline in leverage may lower the risk of financial distress, providing an additional layer of stability.
The interest coverage ratio also improved to 10.18x from 7.63x, highlighting the company’s ability to meet interest obligations comfortably. This indicates that the company generates enough earnings before interest and taxes to cover its interest expenses multiple times over.
Overall, Transcorp Power’s financial health paints a picture of a well-managed company with strong growth potential.
Beyond these impressive figures and metrics, total return and value are also essential considerations for shareholders.
The company has paid a total dividend of N34.65B since its listing, which represents 23.4B as FY 2023 dividend and 11.25B for 2024 interim dividends. With nine-month earnings already 93% above the earnings of 2023, analysts believe the company is likely to increase its final dividend at the end of 2024.
Currently, the stock offers a total return of 14.78% and a consideration of the valuation ratios; earnings multiples, price-to-sales, and price-to-book ratios, which are below industry standards, indicates not only an undervaluation, but that investors are not fully pricing in these factors, possibly due to perceived risks or market skepticism about future profitability, policy shifts, etc.
For value investors, this might signal an opportunity to buy, as it suggests potential upside, if the market adjusts its valuation in line with the company’s underlying assets, revenue, and earnings, provided that the company can navigate sector challenges effectively and sustain its growth trend.
Transcorp Power’s strategic intent for 2024 aims to establish it as a leading power company, with a goal of surpassing N500 billion in annual revenue by 2031. With revenue of N224 billion already achieved in the first nine months of 2024, the company appears well-positioned to meet this ambitious growth target.
In this context, comments from the company’s Managing Director provide further reassurance
Commenting on the Q3 2024 results, Peter Ikenga, MD/CEO of Transcorp Power Plc, stated:
“Despite the infrastructural challenges faced in the power sector, Transcorp Power has once again demonstrated exceptional financial growth, as reflected in our impressive results.
“We continue to strive to bridge the energy gap in Nigeria, in line with our purpose to improve lives.
“I am proud to report that we have sustained our remarkable growth trajectory and maintained our position as a leading contributor to the country’s power sector, accounting for approximately 10% of total power generated on the national grid.
As the market transitions into bilateral contracts, as outlined in the Electricity Act, we are optimistic about sustaining this momentum by capitalizing on strategic investment opportunities and providing additional value to our shareholders.”
