Where will TRANSCORP be in 2024?

Transcorp is already on a bull run, gaining 64% YtD, ranking it 8th on the NGX in terms of YtD performance.

This surge can be attributed to the company’s continued strategic investments in pivotal sectors such as hospitality, power, and agriculture.

The significant growth in revenue and profit further enhances investor sentiment, driving increased interest and confidence in the company’s future prospects.

However, there are doubts about the stock’s ability to sustain its momentum considering its expensive valuation.

With a trailing price-to-earnings ratio of 25, TRANSCORP’s valuation appears to be on the higher end, especially when compared to its peer UACN, which trades at a much lower P/E ratio of 4.

Additionally, TRANSCORP’s P/E ratio surpasses the conglomerate diversified industries sub-sector average trailing P/E ratio of 9.2x, indicating that it may be trading at a premium relative to its industry peers.

This suggests that TRANSCORP may be perceived as expensive in the market, potentially raising concerns among investors about its valuation sustainability.

The recent retreat in TRANSCORP’s stock price, particularly following the release of its unaudited Q4/2023 results, aligns with concerns about its expensive valuation.

Between March 6 and 22, the stock declined by 19%. This retreat suggests that investors may be reassessing their positions in TRANSCORP due to uncertainties surrounding its valuation and future growth prospects.

However, analysts still believe that it is priced for perfection and that it could regain its mojo because a closer look at its key business segments indicates that it is on track to take advantage of its ventures, especially in the power sector

Transcorp revenue from Electric energy and capacity, which accounts for about 78% of the group’s total revenue. shot up 46.5% YoY in 2023.

Management said that the expansion of operations and increased generation capacity at Transcorp Power Limited and TransAfam Power Limited contributed to the higher revenue from the electric energy and capacity segment in 2023.

The electric energy and capacity revenue is expected to continue to grow based on the company’s future expansion programs and government’s focus on improving the power sector’s financial performance through initiatives like the Power Sector Recovery Programme (PSRP), which is expected to create a more favorable business environment.

Most importantly, the recent listing of Transcorp Power Plc (Transcorp Power or TP Plc) by introduction on the Main Board of the Nigerian Exchange (NGX), on Monday, March 4, 2024 making two subsidiaries listed on NGX, demonstrating its commitment to creating value for the Nigerian public and catalyzing economic growth in Nigeria.

As a result, Transcorp’s energy and power segment revenue could witness robust growth in 2024. At the same time, its room and food and beverage segments business are also stepping on the gas.

The combined segments’ revenue was up 37% YoY in 2023 to N40.96 billion, thanks to its strong performance in its International Business Travel segment strong leisure business and it seems on track to grow substantially in 2024

Transcorp generated revenue of N65.95 billion last quarter. With its recent investment and projected expansion in Transcorp Hotel, there is a good chance that revenue will increase in subsequent quarters.

Management says it intends to build a 5-star hotel, with relaxation and lifestyle features, located in the heart of Ikoyi to be delivered by Q1, 2027.

The company’s growth momentum has accelerated in recent years given that the revenue growth rate in 2023 was 44%, significantly higher than the five-year average growth rate of 28%.  Similarly, its market capitalization surged by 666%, driving its five-year annual growth of 170.4%

Consequently the stock currently has a price-to-sales ratio of 1.8x, which is expensive when compared to its five-year average sales multiple of 0.70x.

Typically, when a company demonstrates robust revenue growth, investors may be more willing to pay a higher premium for its sales revenue, leading to an elevated P/S ratio.

The share price has moved from N1.48 in 2018 to N15.45 in 2024. In 2023, it achieved a YtD gain of 666%, marking the highest annual growth rate in five years.

Will the stock reach N65 per share by year-end to match the impressive YtD gain of 2023? What lies ahead for TRANSCORP in 2024?

Looking ahead, if the company continues to sustain or even accelerate its revenue growth momentum, it could further justify the elevated valuation.

This would help maintain elevated investor sentiment, potentially leading to an upward trend in the share price.