Transnational Corporation of Nigeria (Transcorp) Plc has sustained impressive uptrend as the most active and fastest rising stock at the stock market in recent weeks. Now with the second highest average year-to-date return at the stock market, Capital Market Editor, Taofik Salako reports that while demand suggests strong prospects of further appreciation, the next earnings period may be decisive for the conglomerate.
Transnational Corporation of Nigeria (Transcorp) Plc appears to be the toast of investors at the stock market. With the largest volume of activities and the highest capital appreciation week-on-week, it has sustained enviable position atop the activity chart at the stock market. Average year-to-date return at the stock market, as measured by the All Share Index (ASI) of the Nigerian Stock Exchange (NSE), opens today at 39.77 per cent. Transcorp meanwhile opens with a year-to-date return of 459.05 per cent, trailing behind the Forte Oil, which opens with average year-to-date return of 1,321.22 per cent. Forte Oil, previously the fastest rising stock, had been slowed down in recent weeks by profit-taking transactions, with investors taking profit and relocking their gains into other stocks.
For Transcorp, the recent share price rally and scramble started with the confirmation and, subsequently, the handover of its new acquisition- a power plant. As news made the round that Transcorp, alongside other bidders, had completed the acquisition of unbundled power plants, investors rushed shares of Transcorp, the only quoted company and publicly available window to participate in the privatisation of the power sector. Transcorp, through its subsidiary, Transcorp Ugheli Power Limited (TUPL), had in August completed acquisition of Ugheli power plant with the payment of $225 million to complete the $300 million bid price for the power plant. Transcorp had earlier made initial payment of $75 million, being required 25 per cent initial payment by bid winner. Transcorp then started a gradual rise, which fervour has continued to increase with the passing of every week. From a share price range of N1.33 in late August, Transcorp’s share price opens today t year-to-date high of N5.87 per share. This represents an increase of 341.4 per cent in the past three months.
A rush for power
Transcorp is the anchor company in the Transcorp consortium, which included companies such as Wood Rock; Symbion Power LLC, USA; Medea Development; PSL Engineering and Control and Thomassen Services and Contracting Company. With installed capacity of 972 megawatts, current generating capacity of 300 megawatts and potential output of 1070 megawatts, the Ugheli power plant thickens the basket of the conglomerate’s businesses in strategic sectors including Transcorp Hilton Hotel, Abuja; Transcorp Hotels, Calabar; Teragro Commodities Limited and Transcorp Energy Limited, operator of OPL 281. Power, upstream oil, hospitality and agriculture; the combination of businesses and sectors appear to make for a robust outlook, given the synergies in these fastest growing and dominant sectors of the Nigerian economy. Often cited in relation to the boom in the telecommunications sector, most analysts perceive the power firms as cash cows that would not only generate power but significant returns for investors. The monopolistic nature of the system and centrality of the success of the privatization to government’s transformation agenda confer enormous advantages on the power companies. But such enthusiasm is not reflecting on the market consideration of the conglomerate at the stock market, the best indicator to gauge public perception. This is more evident given that Transcorp holds the distinction as the only publicly quoted company with a pie of the power sector.
Growing conglomerate
Besides the acquisition of the Ugheli power plant, Transcorp has recently undertaken several strategic initiatives to enable stable growth. Transcorp recently concluded a rights issue of 12.91 billion ordinary shares of 50 kobo each at N1 per share. The net proceeds of the rights issue estimated at N12.52 billion was scheduled mainly to refinance the loan taken to acquire the Ughelli power plant. About 79 per cent of the net proceeds amounting to N9.84 billion would be used to refinance Ughelli Power. The conglomerate would use N1.63 billion, 13 per cent of net proceeds, for exploration and development of its oil block, Oil Prospecting Licence (OPL) 281. The balance of N1.05 billion, representing 8.0 per cent of net proceeds, would be used to develop new hotels Port Harcourt and Lagos; in order to boost the conglomerate’s hospitality business in the South-South and South-West of Nigeria.
Transcorp is also pushing for growth on other frontiers. It had revised the terms of partnership in its Oil Processing License 281 (OPL 281) in Nigeria. The revised terms were said to be as a result of a change of control in Transcorp as the conglomerate sought to fully take responsibility for the operation of the block in its bid to become a leading Nigerian indigenous oil and gas upstream company with production. It recently signed a new deal with Hilton Worldwide to build a new premier hotel in the up-market suburb of Ikoyi, Lagos. The proposed Transcorp Hilton Lagos, a full service, 350-room hotel on Glover Road, Ikoyi, will be the Hilton Group’s second hotel in Nigeria by Transcorp, following the award-winning Transcorp Hilton Hotel Abuja, which is one of the leaders in Hilton’s global network. The new hotel will be jointly owned by Transnational Hotels and Tourism Services Ltd, the hospitality subsidiary of Transcorp and Tony Elumelu’s Heirs Holdings.
Speaking at the official signing of the management contract, Chairman, Transnational Corporation of Nigeria, Mr. Tony Elumelu said the agreement marked another milestone in the long-standing partnership with Hilton Worldwide. According to him, the Ikoyi development, along with the extensive refurbishment and upgrade of the group’s existing hotels in Calabar and Abuja, demonstrated the conglomerate’s commitment to driving growth in real estate and hospitality, a strategic sector for Nigeria’s economic development.
“The new Transcorp Hilton Lagos will not only present an additional world-class venue for the increasing numbers of investors, businessmen and tourists to Nigeria, but is creating much-needed jobs for our citizens, enabling their social and economic development,” Elumelu, who doubles as chairman of Heirs Holdings, said.
Managing Director, Transnational Hotels and Tourism Services Limited, Valentine Ozigbo said the Transcorp Hilton Lagos will grant the many Hilton Honors customers their desire to see a world-class establishment under their preferred brand in the Lagos.
He said the full construction works for the new hotel will commence early 2014 pointing out that the hotel will boast of full conference facilities, meeting rooms, gym and spa, and a swimming pool in an iconic design that will certainly add verve to the Lagos landscape.
For the board of Transcorp, its expanding business lines will deliver both shareholders’ values and social values. According to Elumelu, the conglomerate’s power business would create long-term social and economic values for all stakeholders as it would leverage on the successful acquisition of Ugheli to consolidate its growth strategy in Nigeria’s power sector.
“We can now embark fully on our strategy to contribute to the development of Nigeria’s power sector, whilst creating long term economic and social value for our stakeholders and the greater community. We fully expect our engagement on this world-class project to improve the living standards of all Nigerians as well as impact positively on our country’s GDP,” Elumelu said.
President, Transnational Corporation of Nigeria (Transcorp) Plc, Mr. Obinna Ufudo said TUPL has extensive worldwide power sector experience in Africa, Europe and the Middle East which underscores its unquestionable capacity to effectively manage the plant profitably in line with international standards.
According to him, the conglomerate plans to increase the power generation of the plant from 300 megawatts to more than 1070 megawatts over the next five years. Chief executive officer, Transcorp Ughelli Power Limited (TUPL), Adeoye Fadeyibi added that the company plans to deliver on capacity targets and sustain the momentum using highly efficient people and resources to achieve operational excellence.
Obviously, Transcorp is riding on the momentum of the power business and the new hotel deals. Besides, investors appear to see a more coordinated and determined approach to the growth of the conglomerate. But beyond the immediate enthusiasm, emerging corporate earnings of the conglomerate and steadiness of its business development strategy will determine the medium to long-term relativity of the share pricing trend. With its troubled background still casting doubts in the minds of several investors, Transcorp needs to deliver tangible and demonstrable returns to sustain growing investors’ confidence.
