Transnational Corporation of Nigeria Plc – Higher Generation Capacity to Buoy Earnings in H2’18

Transnational Corporation of Nigeria Plc - Higher Generation Capacity to Buoy Earnings in H2’18

The Payment Assurance Guarantee (PAG) is expected to further improve TRANSCORP’s liquidity in H2’18. The prospect of top line growth is strengthened by our anticipated growth in generation capacity to 589 MW in FY’18 (FY’17: 421 MW). Similarly, we expect higher patronage of TRANSCORP’s hotels in H2’18, stemming from pre-election activities during the period.

The PAG to further ease liquidity challenge in H2’18

TRANSCORP’s revenue from its power business rose to N23.6 billion (+84.6% YoY) in Q2’18, contributing 84.9% of total revenue during the quarter. The monthly disbursement of the Payment Assurance Guarantee (PAG) to the generation companies (GenCos) has so far eased the liquidity constraint facing TRANSCORP’s operating environment, given that 80% of the firm’s power invoices in H1’18 was paid during the period.

In extension, the paid invoices covered 90% of the firm’s obligations to its gas suppliers. The improved liquidity is evinced by rise in the firm’s operating cash flow to N22.0 billion in H1’18 (H1’17: N11.0 billion).

However, management has noted that the PAG could be completely exhausted in the first quarter of 2019. Nonetheless, we believe that the implementation of the Meter Assets Provider (MAP) Regulation will support power sector liquidity in the post-PAG era. The MAP Regulation will help to boost liquidity in the power sector by ensuring that a pay-before-service system is instilled in the distribution of the sector.

Generation capacity growth to drive power earnings

TRANSCORP’s power business looks set to record another impressive growth in FY’18, following the steady rise in capacity generated (Q2’18: 531 MW, Q1’18: 520 MW, Q2’17: 343 MW). The consistent growth in capacity generated is largely a reflection improved gas supply to the firm as the gas suppliers are guaranteed of payment from the PAG.

However, available capacity dropped to 652 MW in H1’18 (FY’17: 701 MW) as one of the gas turbines was shut down for repairs. Operations are expected to resume at the turbine in Q3’18. In FY’18, we expect capacity generated to come in at 589 MW; thus, we envisage that revenue from the power business will climb to N93.9 billion (+41.4% YoY) in FY’18. Production activities to commence at OPL 281 in 2020 TRANSCORP is currently at the stage of obtaining regulatory approvals for the exploration of its OPL 281 (with proven reserves of 174.64 MMstb of oil and 346.74 Bscf of gas). The firm anticipates that drilling activities will commence at the oil […]

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