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…Analysts forecast stock to cross N1,000 level
…Receives N32 billion from Amperion Power
Geregu Power stock price may just be marking time and consolidating on its technical patterns before making an explosive move higher as a number of positive catalysts are set to drive its fundamentals for long term growth.
Geregu on Friday released its second quarter (Q2), financial statement showing a 34% jump in revenue from energy sold, and capacity charge. Its stock trading on the NGX rose 6.45% to a new 52-week high as investors cheered the announcement of a partnership with the Lagos State Government, the State Grid Corporation of China and the African Development Bank (AfDB).
For the 3-months period to June 2023, revenue for the energy giant stood at N20.465 billion, while gross profit rose by 48.5% to N11.175 billion.
Other positives for the quarter include a reduction in receivables due from related party Amperion Power Distribution Company Ltd, to just N6.9 billion as a total of N31.58 billion was paid to Geregu Power.
Overall, trade receivables fell by 22.4 percent to N59.633 billion.
Geregu remained in solid liquidity position as its cash and cash equivalents for the period stood at a healthy N44.3 billion.
Geregu earns more interest than it pays, so coverage of interest payments is not a concern.
The firm repaid N35.82 billion in long term borrowings helping to cut its outstanding term loans by 47% to N17.363 billion. The outstanding amount is a N17billion facility types 1 to 2 from First Bank Ltd at 20% interest rate to augment working capital and finance major overhaul.
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 and 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.
Geregu hits new 52-week high on its way to N1,000
Geregu Power shares closed trading on the NGX (on July 14) at N330 per share for a market capitalisation of N825 billion. Geregu Power PLC (GEREGU:LAG) set a new 52-week high during Friday’s trading session when it reached N330.00 per share.
Over this period, the share price is up 173.64%, according to markets data from the Financial Times.
On a year-to-date basis, the stock is up 121% as traders continue to digest the numerous positive catalysts set to drive the earnings power of the firm much higher in coming months.
Earning per share (EPS) came in at N1.80 for the 3-months to June 2023, up 25% from the year earlier period (April – June) in 2022. For the 6-months period, the company’s basic earnings per share stood at N3.22.
“Investors and other speculators are looking to buy the shares, which could push it much higher towards the N1,000 per share level, especially in light of the positive announcements on PPP as well as future plans of the company in terms of planned acquisitions. There is also the new Government in Abuja under President Bola Tinubu who will further open up the power sector to private sector players like Geregu,” a buy side analyst at a major investment firm told MoneyCentral.
Fundamentals that will drive Geregu Stock higher
The year 2023 is set to be the first in a multi-year growth surge for Geregu Power Plc, based on its expansion and investment plans.
Geregu Power Plc plans to develop a power transmission project in partnership with the Lagos state government. If the project comes to light, it will be the first of its kind in Nigeria as hitherto, private individuals were not allowed to transmit power in the country.
The move comes on the heels of the recently signed Nigeria Electricity Act 2023 by President Bola Tinubu which grants state government and private individuals the license to transmit electricity in areas covered by the national grid.
The Lagos state government plans to fully take advantage of the new electricity act and establish a sustainable electricity market with a strong commercial framework.
Lagos state is Nigeria’s biggest economy, and the fifth largest in Africa. Its GDP in 2022 stood at $29 billion, while state electricity demand in 2020 was 10,000 megawatts and the power supply was only 1900 megawatts, meaning there is a huge growth opportunity for Geregu Power, which the market has not yet began to price in, analysts tell MoneyCentral.
“We are positive that our expansion plans will lead to exponential growth for many years to come, starting from 2023,” said Akin Akinfemiwa, CEO, Geregu Power Plc.
In the short to medium term, Geregu Power plans to take advantage of the immediate Nigerian environment by using fossil fuels for thermal generation of electricity.
In July 2022, the company issued N40.085 billion unsecured corporate bond for a 7-year tenor and at a coupon and effective interest rate of 14.5% and 14.70% respectively.
“The net proceeds would be used to finance the acquisition of a similar power plant in Nigeria which is currently in the final stage of bidding processes by the Bureau of Public Enterprises (BPE),” Geregu Power said in its Q2, 2023 financials.
The power plant Geregu is seeking to acquire is Geregu 3, a 440 MW plant close to its current operations.
“With the acquisition, we will run a combined cycle operation to ramp up capacity to 1,000 MW in 2 – 3 years,” Akinfemiwa, CEO, Geregu Power Plc, said.
Geregu plans to also take ownership of its feedstock (gas), so as to have a vertically integrated power production business, according to Akinfemiwa.
The firm takes the maintenance of its assets very seriously, as the next major overhaul is estimated to cost N27billion, and 50% of the estimated costs will be financed from the cash generated from operations while the balance would be through debt.
The sum of N4.921billion is being used as cash collateral for the Letter of Credit (LC) established for the next gas turbines major overhaul after 49% LC down payment for spare parts.
Technicals
Geregu’s stock is less volatile than 75% of NGX stocks over the past 3 months, typically moving +/- 5% a week. Geregu’s weekly volatility (5%) has been stable over the past year.
Geregu stock price is currently sitting above the 20-day, 50-day and 100-day moving averages, a bullish technical signal.
About Geregu Power
Geregu Power bought an underperforming State owned power asset in the privatization exercise of 2013, with effective capacity of less than 100 megawatts (MW), and has ramped up its capacity to 435 MW, with 70% – 80% of power generated being fed to the grid.
Geregu Power Plc thermal power plant is located in Ajaokuta, Kogi State, Nigeria. Mr. Femi Otedola joined the board of Geregu Power Plc as Chairman of the Board of Directors in November 2013.
Prior to this, he was the Chairman of the Board of Directors of Forte Oil Plc from May 2007 to June 2019.
His vision transformed Forte Oil Plc into one of the highest performing companies on the Nigerian Stock Exchange. The Company grew in leaps and bounds to become a model of the possibilities inherent in Nigeria, winning numerous accolades in recognition of the successful business turnaround, prompt Financial Reporting, strong Corporate Governance and investment of choice within the Oil and Gas Industry and the Nigerian Stock Exchange.
Other Directors in the firm include : Anil Dua, a co-founder and partner of Gateway Partners, where he also serves as a member of its investment committee leading deal origination and execution across Africa. Prior to establishing Gateway Partners, he was the Chief Executive Officer of Standard Chartered Bank (West Africa), a role he occupied between 2010 and 2015.
Robert Lee worked in the Financial Services Industry for around 40 years with the last 25 years having particular focus in Nigeria including extensive travel to the region. He has primarily worked for global international banks HSBC & Standard Chartered both out of London.
Doron Grupper is a vast professional with experience across engineering and management. He is currently a consultant to Energix Renewable Energies Limited, a renewable energy company with a focus on wind turbine and solar energy. Over the years, Mr. Grupper has served on the Board of several companies not limited to VID Desalination Company Ltd., Mekorot Water Company Ltd., Ellern Energy Infrastructures Ltd., Ellern Gmul Power Stations Ltd., ETG – Water Infrastructures and Management Ltd., Williger Ltd., among others.
Mr. Grupper obtained a BSc degree in Economics and Administration as well as a MSc degree Economics and Administration from Hebrew University, Jerusalem in 1976 and 1980 respectively.
Mr. Julius B. (JB) Omodayo-Owotuga is the Deputy Chief Executive Officer of Geregu Power Plc. He is a CFA Charter Holder and a KPMG trained Chartered Accountant.
He was the Executive Director, Finance & Risk Management at Forte Oil Plc between 2011 and 2019.
Mr. Akin Akinfemiwa is the Chief Executive Officer of Geregu Power Plc and he is responsible for the overall strategic leadership, direction and expansion for the business. He coordinates the formulation, review and implementation of the organization’s strategy, goals and objectives.
Akin serves as a Director on the Board of Amperion Power Distribution Limited and Geregu Power Plc.
Paul Miyonmide Gbededo is a master corporate strategist, hardworking, honest and an urbane gentleman, Paul Gbededo, a Fellow of the Polymer Institute of Nigeria and an Associate of the Chartered Institute of Arbitrators was the Group Managing Director / Chief Executive Officer of FMN from April 2013 to December 2020. He now serves as the non-executive Vice Chairman on the Board of FMN.
Paul was educated at the Polytechnic of North London (now London Metropolitan University, UK) where he obtained Graduateship of Plastic and Rubber Institute and Associateship of National College of Rubber Technology in 1980, and holds a Master of Science Degree in Polymer Technology (1981) of Loughborough University, UK.
Mr. Christopher Adeyemi attended Obafemi Awolowo University Ile Ife where he obtained his LL. B (Hons) degree in 1989. He became a Barrister and Solicitor of the Supreme Court of Nigeria in 1991.
Mr. Adeyemi began his legal career as Head of Green Form Advice and Assistance Team in The Legal Aid Board of England and Wales. During his stint at the Legal Aid Board, he was responsible for setting up the Green Form Advice and Assistance phone extensions team and also the Immigration Project Team.
Olawunmi Otedola is a renowned professional and founder of The Utopia Group, an NGO targeted at alleviating the lives of the Nigerian children. Prior to establishing The Utopia Group, Ms. Otedola worked with several leading corporates, domestic and international, including Zenon Petroleum and Gas Limited and Scottish Church Heritage Research.
Ms Otedola is an alumnus of the University of St. Andrews where she obtained a M.A in psychology in 2009.