Geregu Power Delivers Value to Shareholders as Q3 Earnings Already Surpasses FY 2022’s

Geregu Power Plc came out with third quarter earnings per share (EPS) of N4.54 or N11.14 billion net income. That compares with the full year (FY) 2022 EPS of N4.07 or N10.17 billion.

The largest listed electricity company in Nigeria posted revenue of N55.74 billion, which has already exceeded FY’s 2022 figure of N47.62 billion, the first entity to achieve such a rare feat this year.

It is important to note that the company has been able to sustain earnings growth since the second quarter of last year, a stellar performance that underpins investors’ confidence in the future prospect of the fast growing utility.

Despite operating in a tough and unpredictable macroeconomic environment, pre-tax profit for the first nine months spiked by 25.30 percent to N17.48 billion, while revenue tolled the same lane as it rose 42.92 percent to N55.74 billion.

Healthy balance sheet despite tough electricity market

Geregu Power’s stable earnings stream and a healthy balance means it is not susceptible to bankruptcy and banks will be willing to extend credit to the company to fund capital projects needed to maximize the wealth of shareholders.

For instance, debt to equity ratio (D/E) fell to 0.45 in September 2023 from 0.67 as at September 2022. Simply put, what this means is that Geregu Power has N0.45 of debt for every Naira of equity.

The debt-to-equity ratio is a financial leverage ratio, which is frequently calculated and analyzed, that compares a company’s total liabilities to its shareholder equity.

The D/E ratio is considered to be a gearing ratio, a financial ratio that compares the owner’s equity or capital to debt, or funds borrowed by the company. The debt-to-equity ratio is calculated by dividing a corporation’s total liabilities by its shareholder equity.

The optimal D/E ratio varies by industry, but it should not be above a level of 2.0. A D/E ratio of 2 indicates the company derives two-thirds of its capital financing from debt and one-third from shareholder equity.

While finance costs were up by 100 percent to N8.44 billion as at September 2023 on the back of an aggressive hiking of interest rates by the central bank that seeks to tame rising inflation, the company can pay interest on outstanding debts as its operating profit of N19.88 billion is 2.35 times (x) finance costs.

Sticky inflation exacerbated by the removal of subsidy on premium motor spirits (PMS) and the unification of foreign exchange rate has been weighing on Nigerian firms as elevated borrowing costs combined with geopolitical tensions are squeezing profit of the majority of companies.

The National Bureau of Statistics (NBS) says Nigeria’s headline inflation rate increased to 26.72 per cent in September 2023, the highest in two decades.

The Nigeria 10 year government Bond has a 14.964 percent yield, according to data from World Government Bonds.

Geregu Power is best stock with the current ratio

Geregu Power has enough liquid assets to meet its short-term obligations. It means it can effortlessly pay its suppliers or creditors, which indicates financial stability.

The company’s current ratio stood at 2.21 as at September 2023, which means it has twice as many short-term assets than short-term liabilities.

The current ratio is a liquidity ratio that measures whether a firm has enough resources to meet its short-term obligations. It compares a firm’s current assets to its current liabilities.

The company shares have gained 111.41 percent so far this year, outperforming the NGXASI index.

Expansion drive to magnify shareholders’ earnings

The largest shareholder of Geregu Power and billionaire investor Femi Otedola said the company will continue to invest in ventures that deliver higher returns to shareholders in the form of share appreciation and bumper dividend.

Recently, the power firm partnered with the Lagos State Government, the State Grid Corporation of China and the African Development Bank (AfDB).

Details of the PPP Deal

Geregu alongside its co- investors and technical partners, the State Grid Corporation of China (largest electricity company in the world) have agreed in principle to go into a partnership with LASG to enhance its transmission capacity by circa 3,000MW through a combination of upgrades and new development in the short-medium term with the AFDB acting as the lead arranger and financier in the partnership.

The objective is to support stable and affordable electricity to Lagos state residents ahead of building and developing a state grid with a capacity >10,000MW in the long term.

The benefit of this quick win is that it allows both distribution and transmission upgrades for the immediate provision of a minimum of 3,000 MW which is well over the current 500MW supply.

This is a major step towards closing the power supply gap in the economic nerve center of Nigeria and seen as a boost for economic growth.