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Record earnings trigger investors’ scramble for power sector

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Record earnings trigger investors' scramble for power sector

…as Otedola, Elumelu, Deji Adeleke hit gold from electricity generation

An unprecedented surge in earnings by operators in the nation’s electricity market at the end of FY 2024 and Q1’2024 has triggered a frenzy rush among investors hoping to tap into the lucrative goldmine, Business Hallmark can report.

BH checks at the Ministry of Power and the National Electricity Regulatory Commission (NERC), indicated that applications by investors for power generation, transmission and distribution licences have more than doubled in the last five months.

According to the sources, this surge in interest could be attributed largely to the impressive earnings made by already established electricity power firms, as well as the recent signing of the 2024 Electricity Act by President Bola Tinubu, which further liberalized the power sector for more investors to come in.

Though the impressive performances cuts across the three major electricity power sectors (generation, transmission and distribution), the positive financial performance of major players in the electricity generation sub-sector, especially the two listed firms listed on the Nigerian Exchange Limited (NGX), Geregu Power Plc and Transcorp Power Ltd, has drawn more positive attention to the industry.

For instance, Nigeria’s most profitable power-generating firm, Geregu Power Plc, with an installed capacity of 435MW, recently announced a 254.37% year-on-year appreciation in its revenue to N50.42billion in the first quarter of 2024 (the highest revenue in the last five years), up from N14.23billion recorded in 2023.

An analysis of the power plant’s interim financial statement filed with the NGX obtained by BH, showed that its profit increased by 307 per cent year-on-year to N14.46billiin from N3.54billion in March 2023. Geregu’s performance in 2023 was a 74.11 per cent increase in revenue compared to the N47.62billion earned in 2022.

Further analysis showed that the firm went from a negative position in its net finance income to N133.61million on the back of a moderation in its finance costs from N3.141billion to N2.29billion as of March 2024.

Buoyed by this financial feat, the management of the company at its last Annual General Meeting (AGM) approved a dividend of N8 per share for its shareholders in the 2023 financial year. While addressing shareholders at the AGM, the elated Geregu Power Chairman, Mr. Femi Otedola, said the dividend distribution reflects the firm’s commitment to rewarding its shareholders.

“The dividend declaration is not just a distribution of profits; it is a signal of our confidence in the company’s future and our commitment to sharing our success with those, who have invested in us”, Otedola noted.

BH checks revealed that the dividend payment of N8 per share by Geregu Power is exactly 100% more than the N4.00 Zenith Bank paid to its shareholders in the same period — the highest in the banking sector to date.

In fact, no other company that has declared its dividend payout so far this year came close to the dividend declared by Geregu Power, a pointer to the lucrative nature and huge potentials of the electricity power sector.

It is, therefore, not a surprise to many when Geregu Power emerged number seven out of the 11 companies quoted on the NGX with over N1trn market capitalisation at the close of trading on Friday, May 10, 2024, with a market capitalization of N2.50trillion.

Dangote Cement Plc is number one on the list with N11.2trillion, followed by Airtel Africa N8.26trillion and BUA Foods N6.84trillion. Other firms on the NGX with over N1trn market capitalisation are BUA Cement in fourth with N4.85trillion; MTN Nigeria fifth with N4.377trillion; Transcorp Power Plc in sixth position at N2.80trillion; Geregu Power in seventh position at N2.50trillion; Seplat Energy Plc eight at N1.94trn; GTCO Plc 9th at N1.22trillion; Zenith Bank Plc 10th at N1.21trillion and Transcorp Hotels Plc in 11th with N1.04trillion capitalisation.

Another power company doing remarkably well in the under-performing power industry is Transcorp Power Ltd owned by billionaire Tony Elumelu. The company, a subsidiary of Transnational Corporation Plc (Transcorp Group), operates the Ughelli Power Plant in Delta State, with an installed capacity of 972 megawatts. When the Tony-led Transcorp Group officially took physical ownership of Ughelli Power Plant in November 2013, the plant only had an available capacity of 160MW.

Within four years of its acquisition, Transcorp Power invested heavily in the plant, increasing its available capacity by 227% to 680.83MW, thus surpassing the 5-year target of 670MW set by the Bureau of Public Enterprises (BPE).

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In April, Transcorp Power announced an impressive financial performance in its Q1 2024 unaudited financial statements. The company in its financial statements, reported N67.86 billion in gross earnings, compared to N21.04 billion reported in Q1 2023, a massive leap of 223%.

A breakdown of the result showed that the firm’s Q1 2024 revenue climbed to N67.86 billion, from N21.04 billion in Q1 2023, with Profit before Tax (PBT) climbing by 775% to N28.77 billion, compared to N3.29 billion in Q1 2023.

Meanwhile, Profit after Tax (PAT) grew 665% year-on-year to N20.1 billion, compared to N2.6 billion in Q1 2023, while total assets grew to N276.2 billion in Q1 2024, up from N223.3 billion in the same period last year.

Commenting on his company’s strong performance, Transcorp Power MD/CEO, Peter Ikenga, said this was attained despite sectoral challenges, such as gas supply issues and macroeconomic challenges.

“We are pleased to report further robust financial performance, despite sectoral challenges such as gas supply issues and macroeconomic challenges.

“Our ability to sustain growth amidst this environment shows the resilience of our business model and the efficient execution of our strategic initiatives.

“We remain committed to leveraging our strengths to capitalise on emerging opportunities, drive sustainable growth and provide superior value to all our stakeholders.

“We will continue to prioritise ingenuity, operational excellence, corporate governance, and stakeholder engagement, to deliver superior value for our long-term growth”, Ikenga stated.

In April 2024, the board of the company announced a proposed N3.13 dividend per share to shareholders, a payout that reflects the company’s strong financial position.

Transcorp Power, it would be recalled, got listed on the Nigerian Stock Exchange (NSE) on Monday, March 4, 2024, at a market price of N264 per share and capitalisation of N1.8 trillion

At the close of trading on its first day of listing March 4, a share of Transcorp Power closed at N1.98 trillion, surging to N2.39 trillion, an increase of N415.5 billion within the week.

At the close of trading on Friday, May 9, 2024, the market valuation of Transcorp Power stood at N2.80trillion, indicating its preference as a choice investment option for investors whose continued appetite for the company’s shares is pushing its daily appreciation in the stock market

BH checks on the NGX site showed that the combined valuation of both Geregu Powe and competitor, Transcorp Power Limited currently stands at 9% of the total market value, up from under 3% in September 2023.

In the same vein, Pacific Energy, owners of the Papalanto Power Plant in Ogun State, has been smiling to the banks owing to the recent change in fortunes of operators in the power industry. Owned by Ede-Osun State born billionaire, Deji Adeleke, Pacific Energy, our correspondent gathered, grossed over N20 billion in the first quarter of 2024 owing to the sharp increase in sales.

However, BH was unable to verify the figure supplied by a staff in the accounting department of the company as Pacific Energy is a private entity and is not listed on the NGX.

Like their colleagues in the electricity generation sub-sector, investors in the power distribution sector are also experiencing significant improvement in earnings. For instance, revenue collection by the eleven electricity distribution companies across the country rose by 30 percent in the first nine months of 2023 to N782.74 billion, compared to N598.13 billion collected over similar period in 2022 in spite of poor power supply across the country,

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According to a data from the Nigerian Electricity Regulatory Commission (NERC), collection efficiency improved by three percentage points, rising to 73.6 percent recorded in the first nine months of 2023, when compared to 70.12 percent collection efficiency recorded in the first nine months of 2022.

Also, the 11 electricity distribution companies improved their revenue collection efficiency to 85.82 per cent in February 2024 with the collection of N97.01billion revenue.

An analysis of NERC’s Factsheet for February 2024 showed that total billings of the discos stood at N113.05 billion, while total revenue collected was N97.01 billion.

The document showed that allowed average tariff was N59.89/kilowatt hour (kWh), but the actual average collection was N44.13/kWh, with recovery efficiency standing at 75.35 per cent.

Ikeja Disco recorded the highest revenue collection efficiency collecting N19.48 billion (at 114.64 per cent) out of N17.08 billion billed to customers, closely followed by Eko and Abuja Discos, which recorded revenue collection efficiencies of 99.24 per cent and 87.26 per cent respectively.

Yola, Kano and Jos Discos, however, posted the lowest revenue efficiency for February at 48.47%, 63.15% and 73.04% respectively.

The power industry, meanwhile, has received a lifeline with the recent increment in the price of natural gas for power generation companies to $2.42 per metric million British thermal unit from the previous rate of $2.18mmbtu, as well as the hike in tariff for Band A customers to N205 per kilowatt-hour, from the previous rate of N68/kWh by the Federal Government.

Before the two upward reviews, BH learnt that power generating companies were producing a unit of power at N10.00 on the average, but were selling at N8.00, which experts argue was not cost reflective.

“With the two adjustments in prices, both the gencos and discos are expected to earn more revenue, which is good for their shareholders and investors.

“If allowed to function properly, the electricity power sector is a goldmine for willing investors. That’s why we have been witnessing the massive upsurge in investments in the sector in recent times by industry players and new investors hoping to tap from the windfall”, declared Engr. Olumude Bada, an electricity power consultant based in Lagos.

Despite its 12,522MW installed plant capacity, the Nigerian power sector has been producing an average of 4,000MW daily, an amount that is inadequate for a country with an estimated 200 million people.

 

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