Transcorp Results: Exchange Rate Crisis May Have Killed Off Any Dividend Plans

Analysis: Transcorp 2016 9 Months Results

Transnational Corp. of Nigeria Plc is the latest victim of the brutal effect the impact of the floating of the naira on the balance sheet of companies with dollar denominated debts.

The company posted a loss after tax of N14.02 billion in the third quarter of 2016, compared to a profit of N5.88 billion the previous year. This contrasts to sales, which were up by 37.66% to N41.92 billion as all segment continues to contribute to top lines.

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While sales grew by a double-digit, a foreign exchange loss on financing activities of N18.45 billion undermined the bottom line and hence the loss.

Transnational Corp is burdened by debt expense and its ability to meet interest expense is becoming a huge concern as its interest coverage ratio of 0.46 times earnings is lower than the 1.50% threshold.

Finance costs spiked by 424.42% to N25.15 billion in the period under review while debt to capital ratio stood at 130.19%, which means the large chunk of the company’s balance sheet is financed by debt

Transnational Corp. recorded a 78.51% increase in cost of sales in the period under review. We suspect the rise in cost of production is due to difficulty in obtaining local gas to run factories.

The shortages and economic downturn forced the company to jettison plans to build the biggest power plants in Africa’s most populous nation.

Nigeria’s economy has contracted by 2.1 percent in the second quarter on the back of lower oil price and severe dollar shortages, according to the National Bureau of Statistics (NBS).

The International Monetary Fund (IMF) forecast that the economy will shrink by 1.80 percent by 2016, the worst recession in 25 years.

The central bank adopted a flexible exchange rate regime in June after 15 month of currency peg that saw investors flee for fear of not been able to repatriate their money. The adoption of the new regime saw the naira loss 40 percent of its value against the U.S. currency

Transnational Corp. has a zero dividend yield as the huge loss position may hinder it from paying dividends to owners.