Why Geregu listed by Way of Introduction and not by IPO

Geregu Power Plc is a power generation company incorporated in 2006 and commissioned in 2007. The Company is principally engaged in the generation and sale of electric power.

Geregu’s power plant is wholly owned and operated by Amperion Power Distribution Company Limited (“APDCL”).

On Wednesday, October 5, 222, the company became the first power-generating company in the country to be admitted with the Mainboard of the Nigerian Exchange Limited (NGX) by way of listing by introduction with the admittance of 2.5 billion ordinary shares of 50 kobo each at N100 per share on the Exchange.

The listing added N250 billion to the market capitalization of NGX. On its first trading day on the NGX, the Power generating company’s share gained 10% to close at N110 per share from the N100 per share it was listed by introduction.

Meanwhile at the close of the last trading on Tuesday, October 11, 2022, it closed at 120.90 and thus has gained 9.91%, ranking it 39th on the NGX in terms of year-to-date performance and the 14th most valuable stock with a market capitalization of N302 billion.

Recommended reading: Geregu power gains 10% on first day of trading

Why Geregu listed by way of Introduction

Most companies prefer an Initial Public Offer ” IPO” during the listing, where new shares are created, underwritten, and sold to the public. During secondary trading on the NGX, ownership of shares is simply transferred from one investor to another.

IPO listing is a bit cumbersome and costly for most companies; hence some companies list their stocks via Listing by Way of Introduction (LBI).

• In LBI, the company listing does not have to undergo the book building, underwriting, and public offer process, and no new shares are created; only existing, outstanding shares are sold.
• This means Geregu Power Plc listing by introduction entails that only existing shareholders of Geregu in this case, its owners trade their already existing shares with anyone who may be interested in buying a piece of the company.
• Amperion Power Distribution Company Limited owns the largest share in Geregu Power Plc.

Companies may opt for listing by the introduction to time the market and avoid or reduce market uncertainties or for other reasons not because they need money immediately.

• For example, in 2019, Nigeria’s leading telecommunication company, MTNN listed by introduction on the NGX and prior to going public, had announced earnings before interest, taxes, and depreciation of N453.1bn ($1.27bn) for the 2018 financial year.
• Also, recall that Geregu Power Plc in July 2022 announced its debut of N40.085 billion senior unsecured bonds under its N100 billion multi-instrument bond issuance in the debt market, which was over-subscribed.
• The issuance which started on July 1, 2022, following Security and Exchange Commission’s approval closed on July 14, 2022, with a bond yield of 14.50%

Company Performance

The audited financial statements of the power generating company submitted to the regulators show that, in terms of earnings, the company, met the NGX listing requirement of a pre-tax profit from continuing operation of not less than N300million cumulatively for the last three (3) fiscal years and a minimum of N100 million in two (2) of these years.

• The company’s last pre-listing financial year (2021) profit before tax stood at N29.512 billion; 43% up from N20.649 billion in 2020, while profit after tax was up 45.49% to N20.550 billion from N14.125 billion in 2020FY and earnings per share jumped to N2,055 per share from N1,412.54 in 2020.
• Over the past four years (2018 -2021), the average profit after tax is N18.782 billion or 25% average growth per year, resulting in an impressive average net profit margin of 28% per year.

Bottom Line: Overall, when deciding to invest in shares of Geregu Power Plc, take a similar approach as if you are investing in IPO shares. Read the listing document or prospectus of the company to understand the business nature, its performance, which we have highlighted herein, and its outlook, to find out any corporate action recently taken such as dividend distribution or any possible risk.