Transcorp Hotels Plc announced its Initial Public Offering last week. I have received a few inquiries from readers about the offer and I thought I pen down a few highlights about the offer for those who may not be really interested in reading the prospectus. However, you can get a copy of the prospectus here
1. Transcorp Hotels Plc is selling 800 million shares at N10 per share. The offer will raise N8billion only (N7,704, 275,850 after deducting fees and other offer cost). The company has a current market cap of N71, 820,000,000 which will increase to N79, 820,000,000 after the offer.
2. Trancorp Hotels Plc is currently owned by Transcorp Plc (88% and the FG 12%). Transcorp Hotels Plc currently owns Transcorp Hilton Abuja, Trancorp Hotels Calabar. Therefore, if you own shares in Transcorp Plc you already indirectly own shares in Transcorp Hotels Plc and lay claim to its revenue. If you however, do not want to be part of Trancorp’s other business and just prefer the hotel, then Transcorp Hotels Plc is the right investment vehicle.
3. Transcorp Hotels Plc has 7,182,000,000 issued shares. Post offer the shares outstanding will be 7,982,000,000. Therefore investors in this IPO will have a maximum 10% claim to Transcorp Hotels Plc. Transcorp Hotels Plc is thus basically selling 10% of its post offer shareholdings.
4. This is the second IPO in Nigeria since 2008. Seplat was the only other IPO this year.When Seplat listed, its IPO price was N576 and hasn’t yet dropped below that price. It currently trades at N667.
5. The company wants to use N4.3b for Transcorp Hilton Ikoyi Project expected to be completed in 2017. Another N3.3billion will be used for the Transcorp Hilton Porthacourt expected to be completed in 2017.
6. The Transcorp Ikoyi Project will have 300 rooms at a cost of N22.6b ($140m) or N75m per room or $466k per room. Heirs Holdings will Co own the hotel. The Porthacourt hotel will cost $105m (N17b).
7. The company posted N4.4billion in profit after tax in 2013 which is about 61kobo in trailing twelve months earnings per share. This gives it a pre-offer P.E of 16x based on current price of N10x and post offer P.E of 18x. The company forecast a 2014 forward price to earnings ratio of 15.x and projects a dividend yield of 1.3% this year, 2.5% next year and 3.5% by 2016. Nigerian equities currently provide a dividend yield of 5% on the average and many stocks post as high as 9% dividend yield.
8. The company projects a profit margin of 30% for the first 3 years only for margins to drop to as low as 24% by the 5th year which incidentally is the first full year after the new hotels will be ready. Profit margins has topped 30% in the last 5 years with 2012 an exception where it post 22%
9. The hotel segment of the Transcorp Group contributed N15.3billion or 81% of Group in revenues in 2013. It also contributed N4.4billion in profit after tax representing 45% of the Group’s profits. The hotel segment has been its food basket for years and still contributes a huge part of the group’s profits.
10. The hotel industry is cyclical and exposed to external risk such as political instability, insecurity, air traffic crisis etc. The Nigerian hotel industry is very dependent on business travellers and air crew to sustain occupancy. As such, whenever any of the external risk mentioned above occurs occupancy rates drop affecting revenues and profits. Transcorp Hilton for example had a tough 2011/ 2012 after there were terrorist threat against it after the Thisday Bombing.
I hope to publish another post on the offer soon, where I will attempt to analyse the offer and offer an opinion as to whether I will buy or hold.