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Transcorp Nigeria Plc emerged the NSE30 stock of the week ended July 30, 2021.  Share price and market capitalization appreciated by 8.51%; a gain of N3.25bn in market capitalization W-o-W, closing at market cap of N41.46bn from N38.21bn (23/7/21). However, the NSE 30 Index depreciated by 0.73%, losing N123.57bn to close at N16,840.87bn (30/7/21) from N16,964.44bn (23/7/21).

Transcorp was incorporated on November 16, 2004.  The company is a leading diversified conglomerate in Nigeria; engaged in investment and operation of portfolio companies in the hospitality, power, agro-allied and oil and gas sectors. The Company operates through five segments: Hospitality, Agro-allied, Power, Oil & Gas and Corporate Centre. The Hospitality segment is made up of Transcorp Hotels Plc., Transcorp Hotels Calabar Limited, Transcorp Hotels Ikoyi Limited and Transcorp Hotels Port Harcourt Limited subsidiaries, which renders hospitality services to customers. The Agro-allied segment relates Teragro Commodities Limited subsidiary, which is engaged in the manufacturing/processing of fruit concentrates. The Power segment relates to Transcorp Power Limited subsidiary, which is engaged in generation of electric power. The Oil & Gas segment is made up of two subsidiaries: Transcorp Energy Limited and Transcorp OPL 281 Limited.

S/N WEEK – 30/7/21WEEK – 23/7/21
  % +/(-)AMT IN BN% +/(-)AMT IN BN
1Okomu Oil0.00%0.000.00%0.00
2Presco Plc1.43%1.002.94%2.00
3Guinness Nig Plc-0.47%0.339.14%5.80
4International Breweries-1.92%-2.69-2.80%-4.03
5NB Plc-0.86%-4.000.00%0.00
6Dangote Sugar4.82%10.321.15%2.43
7Flour Mills0.50%0.620.00%0.00
8NASCON Allied Ind.-3.67%-1.460.00%0.00
9Nestle Plc0.00%0.000.00%0.00
10Unilever Nig Plc-2.10%-1.729.58%7.18
11Transcorp Plc8.51%3.252.17%0.81
12Access Bank0.55%1.78-0.54%-1.78
16Fidelity Bank0.42%0.29-0.42%-0.29
17GTB Plc-3.72%-32.370.68%5.89
19Sterling Bank1.32%0.58-2.56%-1.15
20UBA Plc-2.56%-6.840.65%1.71
22Zenith Plc-1.21%-.9.421.64%12.56
23Custodian Investment-0.80%-0.292.46%0.88
25BUA Cement-4.23%-101.590.00%0.00
26Dangote Cement Plc0.04%1.707.82%306.73
27Lafarge (WAPCO)5.29%18.520.46%1.62
28Seplat Petroleum0.00%0.000.00%0.00
2911 Mobil Plc0.00%0.000.00%0.00
30Total Plc0.00%0.0020.95%11.95
 NSE-30 INDEX-0.73%-123.57-0.17%-29.01

The company suffered a serious setback in 2020, due to covid-19.  Al the financial metrics dropped compared to 2019. Revenue dropped by -14.41% Y-o-Y.  Gross profit equally dropped due to increase in cost of revenue.  Cost of revenue in 2020 stood at N42.302bn against N40.918bn leading to a drop in gross profit by -6.75 from N35.357bn in 2019 to N32.969bn.  The further decline in operating income and the increase in net interest expense led to negative net income (-862.04 million) in 2020.

By March 2021, the company returned to the path of profit, declaring a net income of N729.49 million and for H1 2021, declared a net income of N6.503bn.  Earning is forecasted to grow at 60% per year.  Return on equity at 7.9%, which is less than 20% is considered low, but has been forecasted to be high in 3 years’ time.

On February 5, 2021, the stock traded at N1.00/share, since then it has been below N1 until July 30, 2021, when it moved up to N1.02.  Importantly, the stock is considered a stable stock.  It is not significantly more volatile than the rest of NG stocks over the past three months typically, moving +/- 5% a week, which has been stable over the past year.  But to make money in stock trading, there must be price movement.  As volatility increases, the potential to make more money quickly also increases, but high volatility means higher risk. So if you do not have a high appetite for risk, Transcorp is good for you. But be reminded that if you want to create a larger profit margin, the best way is to take the risk against volatile stocks.

In terms of market performance, the stock is doing well. Its 7 day return at 1.1% is higher than the NG renewable Energy Industry return of -0.5% and NG market return of -0.4%.  Equally, it’s one year return at 51.6% is better than the NG renewable energy Industry return of 8.9%, but matched the NG market one year return of 51.8%.

On valuation, the stock is considered undervalued. Using estimated fair value of N6.44 vis-à-vis market price of N0.94, it is trading below its fair value by as much as >20%.  Using earnings multiple vis-à-Vis the industry, it is considered undervalued. The stock’s P/E of 11x is better than the Industry average of 15x, but, higher than the NG market P/E of 7x.  The price to earnings growth ratio lends to assertion that the stock may be undervalued or underpriced, given a PEG of 0.2x, which is less than 1.  The PEG is just an extended analysis of P/E as it takes into consideration the company’s earnings growth, providing a clearer view of profitability growth compared to the P/E ratio.

Using price to book ratio valuation, the stock is equally undervalued.  The P/B, which is 0.6x is less than one.  But to actually get the best from P/B valuation, you have to consider the return on equity; both have to work in tandem. If the P/B is low, the ROE equally has to be low. So the considered low ROE at 7.9% corroborate the P/B that the stock may be undervalued.

Idika Aja, ACS, writes from Lagos and can be reached on 08034003768

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