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Power stocks light up market as investors buy on reform prospects

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Investors bullish on the prospects of the successful conclusion of power reforms are sending stocks exposed to the sector to multi week highs.

Transnational Corporation of Nigeria (Transcorp), part of a consortium that paid $300 million to emerge as the preferred bidder for the 832 megawatts (MW) Ughelli Power Plant, has seen its stock price surge by 65.7 percent in one year.

Transcorp, which is on the verge of a breakout from a tight two-year trading range, has risen 27.5 percent since September 26.

Forte Oil plc, another preferred bidder and part of a consortium that paid $132 million for the 434MW Geregu Power Plant, has seen its shares rise by an eye-popping 368 percent in one year. The stock closed at N47.80 on Wednesday, its highest level in about three years.

By comparison, the wider Nigerian Stock Exchange (NSE) All Share Index (ASI) has risen 44 percent in the past year.

“The impressive returns from Transcorp and Forte Oil clearly reflect investors’ interest in these companies on the back of the power reforms,” said Abiodun Keripe, head of research at Investment One Financial Services Limited, in a response to questions.

“This interest will continue to grow as the transformation enters full completion stage and these companies begin to deliver value based on the opportunities in the power sector.”

The revenues that companies exposed to the sector may generate post privatisation may hit N1.2 trillion per annum in three years with improved efficiency and output, BusinessDay analysis of available data from Power Holding Company of Nigeria (PHCN) shows.

Many of the successful consortia that acquired the Discos and Gencos have contractual undertakings with the Bureau of Public Enterprises (BPE) for quite aggressive capital development plans that will require significant equity fundraising in 2014 and beyond, said Kayode Akindele, partner at 46 Parallels, a Lagos-based investment firm.

“Ancillary industries like IT (billing plus revenue leakage blocking), construction, engineering, etc could also feed off the investment in power and companies in that field that are listed could benefit from it,” Akindele said.

Highlighting the opportunity for investors, Transcorp revenues for the half-year period ended June 2013 was N7.84 billion, while Forte Oil had revenues of N59.9 billion. “Their revenues for 2014 given their successful acquisition of the Gencos are expected to increase materially,” said Akindele.

It is estimated that Nigerians (businesses and individuals) spend $10 billion a year on generators, some of which will migrate to the new private sector power players as electricity supply becomes steadier.

Banks like UBA, GTB, FCMB and First Bank with exposure to the power sector may also benefit, although Akindele notes that “there are too many potential negatives in bank earnings outlook from regulations such as CRR and the AMCON fees for this to provide significant uplift”.

Beyond the two listed companies, investors may get further opportunity to buy into the unbundled and privatised PHCN utilities in the near future.

Regulators, smarting from the missed opportunity of not getting telecoms companies like MTN listed during the licensing period, have made sure to include a provision for the 17 successor companies of the PHCN to be listed on the NSE within 5 years of acquisition.

Article Credit: Business Day Newspaper

Updated 5 Years ago

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Tags:     Power stocks light up market as investors buy on reform prospects     Forte Oil     Transcorp