Capital appreciation: Tony Elumelu and Transcorp Power’s miracle of 10, 10

On the first day of Trancorp’s listing, investors, within 10 minutes, struck a capital appreciation of 10 percent. CHIMA NWOKOJI, in this report, evaluates Transcorp Power investor’s reaction and the influence of Tony Elumelu, Nigeria’s business tycoon.

On June 9, 2023, President Bola Tinubu assented to an electricity Bill, which empowers states, companies and individuals to generate, transmit and distribute electricity.

Fast forward to February 2024, Tinubu again signed the Electricity Act (Amendment) Bill, 2024, into law. The new electricity law repeals the Electricity and Power Sector Reform Act of 2005 and consolidates the laws relating to the Nigerian Electricity Supply Industry (NESI).

The Electricity Act (Amendment) Bill, 2024, seeks to address the development and environmental concerns of host communities.

It sets aside five percent of the actual annual operating expenditures of power generating companies (GenCos) from the preceding year for the development of their respective host communities.

Riding on the enabling law, which empowers states, companies and individuals to generate, transmit and distribute electricity, Transcorp Power, a subsidiary of Transnational Corporation (Transcorp) Plc, envisions a world of opportunities in its long term target of powering one in four households and industries in Nigeria.

A leading power generating company with best-in-class generating power plants and highly profitable operations, TPP seeks to provide a platform through which new investors (from the public) can be admitted into the company, thereby diversifying existing shareholder base. It has therefore taken another transformational, bold step.

This latest step culminated in its listing on Nigerian Exchange Limited (NGX) as an avenue to contribute to the growth of the NGX and the Nigerian capital market at large. The listing was celebrated on March 4 with a closing gong ceremony and a ‘Facts Behind the Listing’ presentation.

The company’s statement of purpose, ‘To improve lives and transform Africa,’ aligns with the spirit of the Electricity Act (Amendment) Bill, 2024, which seeks to “address the development and environmental concerns of host communities.”

Stakeholders believe that the listing of Transcorp Power is further evidence of the execution of Transcorp Group’s integrated power strategy, ensuring Nigeria’s natural resources are harnessed for the development of the Nigerian economy and so delivering on the Group’s mission.

 

The miracle of 10, 10

A little above 10 years ago, November 1, 2013, Transcorp acquired the 972 MW gas-fired Ughelli Power Plant. At the time of acquisition, the plant had only 160MW capacity. Transcorp Power invested and increased the available capacity to 680.83MW (a 227 percent increase) within four years, surpassing the five-year target of 670MW set by the Bureau of Public Enterprises (BPE).

Between 2021 and 2022, the company became the first power GenCo to be awarded the ISO Integrated Management System (IMS). It received post-privatisation discharge certificate from the Federal Government, thus demonstrating the government’s confidence that it can run its operations without intervention.

However, what surprised equity market participants was what looked like a predetermined dice thrown to investors on the first day of the company’s listing.

One of the key functions of the equity market is wealth creation. Analysts said the firm has just embarked on a fresh journey towards this end.

On the first day of Trancorp Power’s listing, investors, within 10 minutes, struck a capital appreciation of 10 percent. It gained 10 percent on the first day of trading, to close at N264 per share, up from the listing price of N240 per share.

The next day, the company sustained an additional 10 per cent in capital appreciation. By the third day, the share price had increased over 30 per cent.

Analysts see this as unique and unprecedented as the company embarks on another 10 year journey after the first 10 years of impact.

Specifically, on Monday, March 4, Transcorp Power opened at a market price of N264 per share with a N1.8 trillion market capitalisation and closed trading at N1.98 trillion.

In the same vein, on Wednesday, Transcorp Power saw an increase in its share value, following a 9.99 per cent appreciation in the company’s share price as it traded at N319.4, up from N290.4 on Tuesday.

Within the week, the company’s market valuation surged to N2.39 trillion, an increase of N415.5 billion in a short while compared to the N1.98 trillion it closed with on Monday.

Commenting on the listing, the NGX, stated, “The leading power generation company’s listing boosts the overall NGX market capitalisation by N1.8 trillion, just as its shares rose by 10 per cent on the first trading day. Following its listing on NGX, the company made its ‘Facts Behind the Listing’ presentation and showcased its performance and strategy to stakeholders.”

On his part, Peter Ikenga, Managing Director and Chief Executive Officer of Transcorp Energy, said this is truly an exciting time in Transcorp.

“We got listed on Monday on the main board of the Nigerian Stock Exchange. We came in at the market capitalisation valuation of N1.8 trillion and immediately got embraced by the market. On the first day of listing, within 10 minutes, we had seen a 10 per cent sustained performance. The next day, we saw an additional 10 per cent. This is truly exciting for us,” he said enthusiastically.

According to Ikenga, November 1, 2023, marked Transcorp Power’s 10 years anniversary and first decade of impact. Now the company is writing its history for the next decade.

“Our 972MW gas-fired power plant is the cornerstone of our commitment to driving positive change in the economy and the lives of the people we serve.

“We harness the power of clean and efficient energy generation to light up industries, homes, and businesses to power the wheels of progress,” Ikenga stated.

In an interview with CNBC Africa, Victoria Ejugwu, an analyst at Vetiva Capital Management, said, “When you look at the performance of the company, its five years was very strong in compound annual growth rate (CAGR) and looking ahead, there is opportunity for even stronger growth just because there’s a huge supply demand imbalance in the power sector.

“So, we are very positive about the opportunity for the company. I think that, that translates into growth for a company in the next five years.”

She added that as the company eyes the electricity market, particularly the last mile distribution, it is positive because mass market has massive investments.

“We initiate coverage of Transcorp Power Plc (TPP) with a BUY recommendation and a target price of N288.36. Our valuation utilises the discounted cash flow methodology and reflects our belief in TPP’s immense growth potential, driven by several key factors including favourable market dynamics and possessing existing infrastructure to capitalise on opportunities within the market,” Vetiva analysts said.

Trading documents from the NEXT showed that Heirs Holdings Capital Limited, owned by Tony Elumelu, the board chairman of Transnational Corporation, sold 560,643 shares of Transcorp Power at N290.40 per share. Rich Point Limited sold 73.05 million units at N290.40 per share, while Transnational Corporation sold 42.97 million shares at N265.83 each.

Speaking about the exercise, Elumelu said as the group chairman of Transcorp, he was very happy, impressed and satisfied with what has happened. Within the transport group, he said there are three companies listed in the Nigerian Stock Exchange, with combined market capitalisation of N3.4 trillion.

He acknowledged the significance of the huge investment, stressing that it is all about improving lives and transforming society.

Elumelu said, “We want this wealth creation to go around. We want to help improve lives of our people. That is why we invested in the power sector. We know that access to electricity is critical in powering our country out of poverty, in creating jobs, in helping hospitals to operate, helping schools to function, helping children to do their homework and in helping to industrialise Nigeria.

“We cannot industrialise Nigeria if we do not fix access to electricity. So, for us at Transcorp, it is not just about wealth creation, it is consistent with our philosophy of Africapitalism. It is about creating economic opportunities for all of us by investing in critical sectors that empower and help improve mankind, humanity, livelihood and most importantly, create jobs for our young people. We are focused on improving access to electricity for all, creating lasting value for our shareholders and contributing to our nation’s development.”

In terms of challenges, Elumelu said, “We succeed and continue to succeed in spite of challenges. Challenges are there. We also try to surmount challenges. If you look at the world, there is no better place today.”

Nigerian Tribune recalls that during the announcement of Transcorp Consortium’s 100 percent acquisition of the Afam Power Plc and Afam Three Fast Power Limited, at an acquisition cost of N105.3 billion, Elumelu had told participants that improving access to electricity remains the single most critical factor for lifting a lot of Nigerians out of poverty and job creation for the teeming youth.

As an entrepreneur, the Transcorp chairman knows the transformative power of investment and entrepreneurship. He has always winked at the paradox of a nation rich in gas resources yet struggling with power shortages, hence stressing the urgent need to invest in Nigeria’s power sector.

Taking this further, analysts said his participation and physical presence at the NGX has a positive impact on investors’ sentiments and underscores Elumelu’s belief in Nigerian capital market, growth potentials of the Nigerian economy and Africa in general.

In an earlier personal note to African entrepreneurs, he had said, “I was born in Africa, raised in Africa, studied in Africa, worked in Africa and have achieved success in Africa. Beyond business success, one must always look for ways not only to give back, but also to empower the generation coming behind us so that they can go even further than we have.

“That is how we can enact this social and economic change that we are all seeking in our continent and in our world today.”

Not blind to politics, Elumelu trusts in the importance of democracy in fostering business growth. According to him, as an entrepreneur and philanthropist, “I take a keen interest in democracy and business, particularly in Africa. It is important to have an effective democratic system so that the private sector can remain competitive and the interests of the people are protected.

“Democratic governments are more likely to adopt policies that support local economic development and foster a legal system that settles disputes fairly. These are essential elements to a thriving private sector in Africa.”

 

More facts and figures

In December 2023, TPP converted into a public limited liability company, following which its name was changed to Transcorp Power Plc.

The company is led by a highly committed, balanced, diversified and experienced Board of Directors and management team, working together to strengthen its position as Nigeria’s top power generation company.

Transcorp Power generates 10 percent of Nigeria’s power, thus powering 10 million homes, schools, hospitals and industries with 18 gas turbines.

As at the end of the 2023 financial year (FY), Transcorp Power recorded N142.1 billion revenues; N69.4 billion earnings before interest, taxes, depreciation and amortisation (EBITDA), which is a useful way to measure how efficiently a company is operating and how it compares to competitors.

Transcorp Power announced N52.8 billion Profit Before Tax as at FY 2023; N223.4 billion total assets and N58.7 billion shareholders’ funds as at FY 2023.

Transcorp Power Plc (TPP), a subsidiary of Transnational Corporation Plc (Transcorp), listed its 7.5 billion ordinary shares of 50 kobo on the Nigerian Stock Exchange at N240 per share.

Listing by introduction means listing the existing, entire issued and fully paid-up ordinary shares of TPP on the Nigerian Stock Exchange without issuing any new shares or raising any capital.

In a note to clients, the company explained that Transcorp Corporation Plc is not divesting its shares in TPP. Transcorp Power Plc undertook the listing by introduction to provide a platform through which new investors can participate in the company’s capital and future growth prospects, thereby diversifying the existing shareholder base.

The listing creates a liquidity event for current and future shareholders. This means the existing investors of TPP can sell their holdings if they wish and new investors can also invest directly in the power subsector in Nigeria via TPP.

Thus, TPP can raise capital on its balance sheet without referencing Transcorp Corporation Plc, its parent company.

Also, a TPP as a separate entity will allow institutional buyers to diversify their portfolios by adding a non-correlating sector-like power.

The share price of Transcorp Power is higher than its parent Transcorp Corporation Plc because in technical terms, it is called a negative stub and it occurs when the market value of the parent is less than the market value of the parent ownership in a publicly traded subsidiary. As at Thursday March 14, Transcorp Power’s share price rose to N380.00 while that of Transcorp Plc stood at N16. 40 per share.

Analysts likened this to a situation where the “whole” is worth less than the sum of the parts, an excellent example of the 3Coms spin-off of its palm division of handheld computers.

Power and utilities are usually safe, boring dividend generators. However, TPP is a crucial power provider to Nigeria and the Benin Republic; it still has room to grow and boost earnings.

Most importantly, experts believe that a stock like Transcorp is not strongly correlated to recession or the overall stock market. Power is an essential cost to all Nigerians but revenue to Transcorp power.

Non-correlation, according to analysts, is likened to “insurance” in investor’s portfolio. Power demand is inelastic, which helps proper pricing even during inflationary periods.

TPP currently generates about 10 percent of Nigeria’s power with existing assets and the capacity to contribute further. This means an investment in TPP represents a proxy vote on the future growth of Nigeria.

 

About Transcorp Group

Transcorp Group is one of Africa’s leading, listed companies, with strategic investments in the power, hospitality and energy sectors, driven by its mission to improve lives and transform Africa.

Transcorp Group’s power businesses, Transcorp Power Plc and Trans Afam Power, provide 15 percent of Nigeria’s installed power capacity. Transcorp Group is committed to developing Nigeria’s domestic energy value chain, through its investments in OPL287.

The Group’s listed hospitality business, Transcorp Hotels Plc, owns the iconic Transcorp Hilton Abuja, Nigeria’s flagship hospitality destination and has launched digital platform, Aura by Transcorp Hotels, according to Stanley Chikwendu, Group Company Secretary, Transnational Corporation Plc.

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