Transnational Corporation of Nigeria Plc 9M'18 results - On course to a greener close in FY'18

23 October, 2018

Good afternoon,

Transnational Corporation of Nigeria Plc (TRANSCORP) 9M'18 results "" Turnover advanced by 40.7% YoY to N79.9 billion, in line with our estimate of N81.6 billion (-2.2% deviation). Similarly, after tax earnings jumped to N16.0 billion (+95.0% YoY) in the nine-month period, beating our estimate of N14.9 billion (+6.8% deviation.) 

Other highlights:

·     TRANSCORP's turnover slid 7.3% QoQ to N25.8 billion in Q3'18, dragged by the 10.5% QoQ fall in the power business revenue (81.9% of total revenue). However, compared to the corresponding quarter in FY'17, revenue recorded a growth of 14.1% YoY.

·     Meanwhile, TRANSCORP's hotel business sustained its positive track record, as the segment revenue climbed 30.0% YoY and 11.3% QoQ to N4.7 billion in Q3'18. We attribute the QoQ growth in the hospitality segment to higher patronage, stemming from increased political activities during the period.

·     Despite the QoQ decrease in turnover, gross margin came in higher at 48.1% in Q3'18 (Q3'17: 47.6%, Q2'18: 45.3%), indicating improved production efficiency. The 16.3% QoQ drop in the costs of gas and other fuels for the power plant majorly accounted for the decline in cost of sales (-11.9% QoQ) in Q3'18.

·     We observed operational cost efficiency during the quarter as operating margin improved to 33.3% (Q2'18: 32.0%). Profit after tax, however, came in lower at N5.1 billion (-6.9% QoQ), reflecting the impact of lower turnover recorded during the period. Nonetheless, on a year-on-year basis, earnings after tax advanced by 28.0%, following the YoY growth (+14.1%) in top line.

Analyst take: Though TRANCORP's turnover moderated QoQ, we still think the firm is on course to record an impressive performance in FY'18, given that the revenue in 9M'18 has already equalled that made in FY'17. Furthermore, we highlight that the monthly disbursement of the Payment Assurance Guarantee (PAG) to the generation companies (GenCos) continues to ease the strain on TRANSCORP's liquidity as its operating cash flows improved to N30.1 billion in 9M'18 (H1'18: N22.0 billion.) Taken together, we expect TRANSCORP to return value to its shareholders in FY'18, evinced by the 9M'18 earnings per share (EPS) of N17.37, which is 48.5% higher than the FY'17 EPS. Our target price on the counter remains unchanged at N2.01 (BUY.)

Kindly click here  for a copy of TRANSCORP's 9M'18 results.

Regards,