Investors who have not bought the shares of Geregu Power Plc are inadvertently shooting themselves in the foot as the company has the financial strength to pay bumper dividends as it is efficient in using its capital in generating profit.
The company that became the first power firm to list on the NGX Mainboard last week recorded improvement in key financial metric and lower gearing and strong cash flow position means it is impervious to macroeconomic headwinds.
For the year ended December 2021, Geregu Power’s net income surged by 45.53 percent to N20.54 billion from N14.12 billion as at December 2020.
It earns sizable profit from business function for a given period as operating profit soared by 54.55 percent to N29.52 percent in December 2021 from N19.10 billion the previous year.
It is important to note that the power firm is efficient in managing its production costs, such as labor and supplies, in order to generate income from the sales of its goods and services.
Gross profit spiked by 45.97 percent to N33.34 billion in December 2021 from N22.84 billion the previous year.
Sales spiked by 32.19 percent to N70.95 billion in the period under review from N53.67 billion the previous year.
A breakdown of the top line figures per segment shows revenue from Power, which make up 64.15 percent of total sales, was up 27.96 percent to N45.69 billion as at December 2021, while revenue from capacity charge, which make up 35.85 percent of total top line figure, increased by 34.07 percent to N25.26 billion as at December 2021.
The market had been anticipating a stellar performance as the listing under the Geregu Power under the utility sector added N275 billion to the market capitalisation, further boosting liquidity in the Nigerian capital market and providing opportunities for wealth creation.
Analysts say going public makes it much easier for the company to raise capital to strengthen its working capital and invest in the power sector that is begging for such investment.
It is to be recalled that it recently announced the successful issuance of its N40.085 billion senior unsecured bonds under its N100 billion multi-instrument issuance programme.
The company has been able to effectively generate return on the investment it received from its shareholders as the return on equity increased to 34.29 percent in the period under review from 18.34 percent the previous year.
Also, it is using its investments effectively to maintain and protect their long-term profits and market share against competitors as the return on capital (ROC) increased to 49.25 percent in December 2021 from 24.81 percent the previous year.
The Board’s policy is to maintain a strong capital base, in order to maintain investor, creditor and market confidence and to sustain future development of the business, according to the company.
“The Board of Directors monitors the return on capital, which the Company defines as result from operating activities divided by total shareholders’ equity, excluding non-redeemable preference shares and noncontrolling interests. The Board of Directors also monitors the level of dividends to ordinary shareholders,” said the company.
Gross profit margin increased to 47 percent in December 2021 from 42.55 percent the previous year.
Net profit margin moved to 28.96 percent in the period under review from 26.30 percent as at December 2020.
Geregu Power’s cash margin increased to 47.10 percent in December 2021 from 5.10 percent the previous year; this means it is efficient in converting sales to cash as it also indicates that it has the financial strength to pay dividend, settle both short and long term obligations, and fund future expansion plans.
Cash generated from operating activities surged by 1336.63 percent to N33.42 billion in the period under review from N2.29 billion as at December 2020.
The company has an interest cover of 30, which implies that it has sufficient profitability to bear 30 the amount of current finance costs.
It is important to note that the firm is not susceptible or vulnerable to financial risk and there is no threat to the going concerns as the debt to equity (D/E) ratio stood at 15.49 percent as at December 2021, with no debt in the books the previous year.
A low D/E ratio means the chunk of the balance sheet is financed by shareholders’ money, which paves the way for more borrowings.
The Power Company has an historical price to earnings multiples of 14.75 and its share price closed at N120.9 as of 2:00 pm in Lagos, valuing it at N 302.25 billion.