Earnings Review H1: Transcorp Result Bouyed By Interest Income

Transnational Corporation, Transcorp released its Q2 results with profit after tax rising 71% to N939m when compared to the same period last year. This follows with their impressive Q1 result which showed a profit after tax of N518.6m. This was on the back of a revenue of N788m, 36% lower than the N1.2b obtained in the same period last year. Transcorp’s operating income, an indicator of its core business performance dropped 62.4% to N304m. The Company’s return to profitability is probably now confirmed going by the trend featured in the last 4 to 5 quarters. This must be a welcomed trend for shareholders who have for years held on to shares of the company that was hitherto next to nothing.

Bottom Line

The company had a net operating margin of 38.5%, significantly lower than the 64% earned in the same period last year. This is mainly attributed to the 36% drop in revenue for this quarter. I suspect this drop in revenue may be due to the impact of security concerns in the country which may have significantly affected their core income generating asset, Transcorp Hilton Abuja. However, the company was able to compensate for this drop with a 71% increase profit after tax . This anomaly as you may initially think is due to the high net interest income of N747b for this period. Whilst this may seem like an extra-ordinary income, I believe Transcorp can with its strong cash flows from its subsidiaries turn them into strong income streams. Interest Rates on most Government Securities have mostly averaged 14% year to date and so with their low debt (N2.4b) and huge cash pile of N2.49b I see nothing stopping them from generating huge interest income from their cash turnovers.

The Sun seems to be finally shining on Transcorp and I hope this trend persist. The company still faces huge challenges which precipitates from its inglorious past due to losses carried forward and subsequent eroding of capital. But these are surmountable and minuscule when compared to the challenges of maintaining profitability amidst a difficult economic terrain. Based on this result the company gets our black ink of profitability