Since its listing by introduction on March 4, 2024, Transcorp Power has experienced a notable 42.8% YtD gain in its share price, leading to a market capitalization of N2.83 trillion and ranking it 13th on the NGX in terms of year-to-date performance.
Following its commendable financial performance in the 2023 fiscal year, the board of directors has recommended a dividend payout of N23.4 billion subject to shareholders’ rectification at the next AGM.
The dividend declared according to the company represents a 77% payout ratio which is in line with its dividend policy.
While the declared dividend, coupled with the upward trend in share price and robust liquidity, is expected to bolster the stock’s investment allure, the critical question remains: Can TRANSPOWER maintain investors’ sentiment and confidence?
Financial analysts had initially anticipated a high yield for Transcorp Power shares upon their debut listing, identifying potential opportunities for savvy investors
On April 5, 2024, Transcorp Power disclosed its audited financial results for 2023, indicating a substantial year-over-year revenue increase of 57.30% to N142 billion, surpassing its five-year growth rate of 21%.
The outperformance of its long-term growth rate may enhance the company’s attractiveness to investors seeking opportunities for capital appreciation.
During the Investors Conference Call on April 15, 2024, Chief Financial Officer, Evans Okpogoro provided insights into the factors driving Transcorp Power’s revenue surge.
He highlighted that the growth was fueled by increased energy delivery and capacity charge, alongside the company’s expansion into international markets, which contributed 18% of its total revenue.
Okpogoro also elaborated on how the company has successfully sustained and expanded its EBITDA margins. According to him, this achievement reinforces Transcorp Power’s standing as one of the foremost power generation companies in Nigeria.
Additionally, the company’s effective cost management, as reflected in the decline in the cost-to-income ratio from 68% to 63% in 2023, equally played a role in achieving the growth in both Profit Before Tax and Profit After Tax, which surged by 84% and 75% respectively.
The company also affirmed its commitment to further enhancing its cost management strategies to maximize returns for all stakeholders.
Already achieving a return on equity of 52.3% and a return on assets of 13.5% for the 2023 financial year is impressive and particularly noteworthy for a utility company.
Such impressive returns indicate the company’s ability to efficiently deploy its resources and generate value, which is likely to bolster investor confidence.
Furthermore, the liquidation of its foreign loan in January is expected to overall enhance future returns for shareholders. The company stated:
This strategic achievement is expected to decrease interest expenses, which surged by 76% YoY to N7.7 billion in 2023. Subsequently, it is expected to elevate the interest coverage ratio, increase free cash flow, and boost an already healthy balance sheet further.
Also, it will further lower the company’s gearing ratio, which declined to 35% from 51% in 2022. A lower gearing ratio reduces the risk of financial distress, particularly during economic downturns or periods of high-interest rates.
Overall, the important thing to an investor is how the market values TRANSPOWER.
For instance, TRANSPOWER’s price-to-sales ratio of 19.89x, which is lower, compared to the sub-sector’s average ratio of 25.02x offers investors perspective on how the market values the company relative to its sales revenue.
A lower price-to-sales ratio for TRANSPOWER compared to the average sub-sector ratio suggests that TRANSPOWER might be considered undervalued concerning its sales performance.
For investors, this could potentially enhance sentiment towards TRANSPOWER as it suggests an opportunity for investment at a relatively lower valuation. Investors often seek undervalued stocks with growth potential, and a lower price-to-sales ratio may attract them.
However, investors should conduct comprehensive research and consider various factors beyond the price-to-sales ratio.
Other factors such as the company’s growth prospects, industry dynamics, risk profile, etc., are essential considerations.
Transcorp Power’s strategic intent for 2024, aiming to become a leading power company with an annual revenue surpassing N500 billion by 2031, reflects ambitious growth objectives.
However, the industry’s risk profile may pose a challenge. The Power situation is bad with frequent grid collapses. The GENCOs are owed payment by the FG, emanating from subsidies
The recent tariff hikes and subsidy reductions add further strain, with the GENCOs at risk of non-payment from DisCos, which often report significant collection losses.
Additionally, the company’s planned expansion may cost it a significant amount of money in the future.
This could impact further dividend payments.