Transcorp Plc has gained over 490% in the last one year alone. The company’s share price has been bullish in the past one month following their acquisition of the Ughelli Power Plant as investors believe this is probably tied to the fortunes of the company. However, for every bull rush there are always innocent by standers who get carried along in the tidal waved. They find themselves buying shares in the company that they mostly know nothing off. Without wasting too much of your time, here are top 10 things you need to know about Transcorp Plc
1. Transcorp reports its results as a Group and as a Company. As a Group it made a Revenue of N11.7billion and pre-tax profits of N5.1billion as at September 2013. However, as a company (without its ‘subsidiaries’ it only posted 52% rise in pre-tax profits of just N1.8billion. This is because currently its major source of revenue is from its Hotel Division of which Transcorp Hilton Abuja is the main hotel. Last Year, out of its total revenue of N13.5billion its Hotel division contributed close to N13billion.Therefore out of the profit of N5.1billion made during the year, Transcorp shareholders only laid claim to N2.6billion.
2. The Ministry of Finance Incorporated (MOFI) owns 49% of Transnational Hotels and Tourism Services Limited (THTSL) shares and is represented on the board of THTSL. Which means even though it has control over THTSL and consolidates its accounts when reporting a significant part of the profits is shared with the Ministry of Finance. Transcorp therefore has been relying mainly on the hotel revenues to post profits in the last 5 years.
3. Transcorp has 4 core segments; Hospitality, Agriculture, Energy and Corporate. The other segments, Agriculture & Energy are yet to contribute significantly to revenue. Its Juice Concentrate Plant in Kogi State will probably just start producing next year. They recently acquired Ugheli Power plant is also co-owned with other members of their consortium. In conjunction with its partners they paid $300million (N47billion) to acquire 100% of the power plant. The Consortium borrowed about N38.6billion to fund this (Transcorp as a company only borrowed N5.8billion). The company also plans to increase the capacity from 900mw to over 1500mw in three years. This will involve more investments as the company will be required to fund the increase either from its cash flows, or equity or debt.
4. Transcorp has not paid dividends since 2007 due to carried over losses from prior years. It has however, posted profits consistently since 2009 but its carried over losses (negative retained earnings) of over N22billion restricted them from paying dividends. As such, if you are looking to find a dividend history for the company, you won’t find any.
5. The good news however is that the carried over losses has now been cancelled against their share capital meaning that they can now pay dividends should the board recommend and shareholders approve. Their retained earnings is now a positive N4.8billion (as at September 2013). However, by my projection the most the company can post this year in profits is between N2.5billion to N3billion. It will be unlikely that they will pay dividends based on that projection preferring to shore up retained earnings and reinvest the cash in their various projects they are embarking on.
6. Transcorp recently concluded a rights issue this year which increased its outstanding shares from 25.8billion units to 35.7billion units and raised about N12.3billion. It used the money to pay don’t most of its debts thus reducing its debts from N13.2billion as at 2012 to N3billion as at September 2013. Rights Issues typically dilutes shareholding for shareholders who did not take up the shares. It also reduces their Trailing Adjusted Earnings Per share as more shares now rank against profits.
7. The company’s current share price of about N5.35 is 107x its trailing earnings per share. In fact the market capitalisation of Transcorp is now N207billion which is about 83x the profits it posted last year and 121x its current 9 months profit after tax. Compare that to UBA which has a market cap of N257billion which is about 5x its profits after tax of N51.4billion in 2012 and 6.9x the N37billion it posted as profit after tax as at September 2013. The market is basically pricing Transcorp at 80% the value of UBA even though for every N1 Transcorp made in profits this year, UBA made N23!!
8. Transcorp took over Ughelli Power plant on the weekend of November 1-3 2013. On November 4 2013 the MD appeared on CNCB Africa to give insight into the just released results and the impact of its various acquisition on bottom line. Since then the share price has risen 178%!!!
9. As things stand, the impact of its acquisitions and planned expansion on its bottom line can only be seen from next year. However, the market seems to be pricing that information already into its valuation. As such based on this current price, even if the company doubles its profits this year for the next 5 years its trailing P.E Ratio of about 121x currently will drop to 15x in 2016 and 8x in 2017. What it means is that Earnings yield of above 10% can only be achieved based on this price in 2017. Anyone who buys this stock at this price can only expect to cash in on any value of the share price continues to rise. It is not impossible in this market as the likes of Forte Oil, Conoil and Jos International Breweries has shown.
10. Transcorp Plc highest share price ever was N9.17 in August 2007, therefore the current share price is its highest in 6 years.
FInally, Transcorp is a company in transition and looking to deliver on its promise as set out by those who conceived the idea years ago. It’s new management has shown resolve to turn around the company and recent deals and restructuring plans show just how serious they are to achieve that. However, share price appreciation should not be the main concern for investors and indeed the managers for now. It will be wise to reward the company with concrete results which can only be derived from stellar performances from not only its Hospitality division by from its Energy and Agriculture divisions as well.