Transcorp block sale of 11.2 billion shares explained

Transcorp Chairman, Tony Elumelu.
  • Transcorp reported a block sale of 11.2 billion shares on Thursday November 30, 2017
  • This sent shock waves across the market, as investors pondered if there has been a massive divestment
  • However, Nairametrics now understands what went down, and explains in this article.

Transnational Corporation of Nigeria, Transcorp recorded a block sale of 11,274,668,322 units on Thursday at N1.26. The deal worth an estimated N14.2 billion sent shock waves through the market as investors wondered what was going on.

Transcorp has a total outstanding shares of 40.6 billion units, thus about 27.5% of its equity crossed hands.

Sale explained

Nairametrics now understands that the block deal was an internal transfer of shares between core shareholders of Transcorp which combined, hold over 47% of the equity of the company.

Mr Tony Elumelu directly or indirectly owns about 47% of this shares, 17.9 million units in total.

The deal we understand was between Heirs Holding, the investing vehicle used by Mr Elumelu, and an undisclosed entity within the group.

According to the source, the shares was moved from the portfolio of Heirs Holding to another entity within the control of Mr Elumelu, in a move regarded as “strategic re-balancing of their portfolio”. It is unclear why this was necessary.

Deposit for shares

Included in Transcorp balance sheet is a deposit for shares of about N2.1 billion, which it disclosed is based on the Memorandum of Understanding between Transcorp Hotels Plc and Heirs Holdings Limited, Transcorp Hotels Ikoyi Limited.

The MOU required that Transcorp Hotels will issue shares to Heirs Holdings Limited on completion of the construction and start of operation of the hotel.

This is in exchange for Heirs Holding Nigeria Limited’s contribution to the development of Transcorp Hotels Ikoyi Limited.

Transcorp Results

Transcorp 9 Months results for 2017 showed the company reported a revenue growth of about 35% to N56.7 billion compared to N41.9 billion a year earlier. The bulk of Transcorp’s revenue comes from its Power Generating company, contributing about N30 billion (2016 9M: N19 billion) to revenues.

The company also recorded a profit after tax of about N8.1 billion, bouncing back from a loss of about N14.2 billion in the prior year. Due to the holding structure of Transcorp, shareholders of the parent company lay claim to only about N3.2 billion of those profits.

In terms of a potential for dividends, shareholders of the parent company will have to manage their expectations as they currently have profits before tax of N1.4 billion and an earnings per share of 3.57 kobo.

Share price performance

Transcorp shares has performed relatively well in 2017, having appreciated by about 94% in the last one year. Using a group trailing twelve months earnings per share of 25 kobo, the company’s share price of N1.36 gives it a price earnings multiple of 5.4x, higher than index average of about 4x.

Transcorp did not pay any dividend for the year ended December 2016, however, its last dividend of 5 kobo per share, suggest a yield of 3.6% based on the current share price.

Transcorp debts

The company’s external debt of about N105 billion compared to its total equity of N97 billion suggest it is highly leveraged.

Most of its debts is tied up in Property Plant and Equipment (PP&E) with a balance sheet value of about N156 billion. It has spent another N15.2 billion in PP&E this year alone.

Interest payment on debt resulted in a cash outflow of about N7.1 billion as at September 2017.