Based on available data to date, cursory analysis reveals a significant positive shift in market optimism towards Transcorp shares on the Nigerian bourse, recording +245.71% YTD appreciation as at November 15th2013 – an impressive performance that may not be necessarily driven by its fundamentals but by some key landmarks / potential upsides in the eyes of investors recorded in the recent times.

The major but perhaps not the only landmark is the recent diversification into the ‘power/energy’ sector through the successful acquisition of the Ughelli power plant assets.

A peep into the data available on the stock reveals a strong price recovery trend with renewed investors’ loyalty since 2012 as the firm closed the year with +84.21% gain for the year against +10.00% gain recorded in the previous year, surpassing the +35.45% returns recorded by the key benchmark indices during same period. Also, we observed the significant surge in the daily average volume(s) recorded. The total average volume traded in the previous year was 19.89million while the figure stands at 51.75million units as at November 15th 2013.

This in our opinion could not be isolated from the drastic change in the share ownership structure of the firm; and key changes in the management of the company towards end of 2011 – A change that reflects moderate if not total hands-off approach from the political limitations that hindered its effective running. This development garnered a lot of positive sentiments towards the firm in the year 2012 – a confidence building move that has been sustained despite the hiccup that occurred leading to a CEO change mid-way

The euphoria around a professionally managed Transcorp coupled with an aggressive approach by the new management to ramp up quick wins and sustainable growth through both organic and inorganic business acquisitions, has all helped to chart a new course that has seen the repositioning of the firm as being able to not only realise its full potentials, but build upon same.

In addition, Transcorp’s new management intends to expand the company’s horizon with its plan to build eight hotels that trade under the Hilton brand in Nigeria to take advantage of a significant increase in business visitors to the country; apart from its increased and significant investment in agriculture – specifically, the processing of fruits, rice and cassava.

All this has energised market optimism towards the stock as further analysis revealed +21.90% price appreciation against 14% uptick recorded by ASI as at half-year 2013 despite -56.88% plunge in bottom-line presented for the year-ended 31st 2012 while it’s EPS fell from 7.74 to 4.38. This ‘beyond fundamentals action’ represents a divergence between its fundamentals and price movement, indicating the overwhelming impact of the landmark moves and aggressive diversifications noted above. The company’s earnings report for the period ended 31st 2012 reveals that the total assets grew by +22.99%.

Transcorp paid US$300 for Ughelli thermal plant with an installed capacity is about 900MW. Analysts will bear in mind the debt element behind the financing for the Ughelli plant acquisition which would have attracted daily interest payments during the delay in the handover by government; an expense that will not significantly hurt the company but adjust its payback period; even as the outlay on a plant still requires additional expenses relating to new turbines needed to be installed given its long years of neglect/non-upgrade (technology/operational wise).

Be that as it may, and subsequent to the announcement of the winning of the power plant bid and its eventual handing over on November 1, 2013 by the GON, Transcorp Plc’s shares surged by +183.59% between end of Q2’13 till November 15th 2013, which further affirms the significance/impact of the diversification to its stock price movement even as its bottom-line in Q2’13 earnings report remained weak with -1.74% decline in the position recorded at the end of 2012 financial year; and it may not reflect any significant uptick in this years financials (NB: its total assets moved up by 4.36%).

The company’s nine months earnings report showed significant improvement of 41.65% in its bottom-line to close at N3.5billion, while its turnover closed with a decline of -11.04%. Noteworthy must be the commendable 40.17% growth recorded in its Net assets during the period under review.

Originally published on Proshare

2013-11-19