Meristem Values Transcorp Power at N305 per share, 27% higher than listed price

Meristem Stockbrokers has advised investors to buy shares of Transcorp Power Plc, which ended its second trading day with a 10% increase, closing at N290.4. Transcorp Power was listed at N240 per share on Monday.

Despite benefiting financially from both buying and selling transactions, the stockbroking service forecasts that Transcorp Power holds a fair value of N305 per share.

According to an investment report reviewed by Nairametrics, Meristem disclosed that its fair value estimate of N305.33 per share for Transcorp Power Plc was derived using a mix of different valuation techniques, taking into account the company’s growth prospects, associated risks, and prevailing market conditions.

What Meristem is Saying

According to Meristem, Transcorp Power’s selling point is its strategic location, which is close to sources of gas, and its ability to earn revenue from multiple sources.

• “The company’s strategic location, commitment to self-sufficiency, and sustainability initiatives position it for continued growth. The firm’s core service offerings include capacity charges, energy delivered, and ancillary services. TPP also boasts a robust supply chain network and an experienced management team, which gives the firm an edge over other power sector players.”

The analysts also stated that it anticipates long-term success for Transcorp Power based on its initiatives international market presence and efficient operations.

• “Looking ahead, we anticipate sustained revenue expansion for Transcorp Power, driven by existing capabilities and emerging opportunities. The company’s strategic initiatives, international market presence, and focus on operational efficiency position it for long-term success.”

How they arrived at the valuation

Meritrade has estimated the company’s worth at N2.29 trillion; however, they failed to support their valuation with empirical evidence.

Their approach did not show empiral insights, omitting critical valuation metrics such as terminal value, weighted average cost of capital, and the evaluation period.

See below

• In arriving at a fair value of NGN2,289,899,272,281.17 (NGN305.33 per share) for Transcorp Power Plc, we utilized a blended Discounted Cash Flow (DCF) valuation models (Equity Discounted Cash Flow Model, Enterprise Discounted Cash Flow Model, Dividend and Economic Profit Model) and the Relative Valuation Approach.
• The valuation process considered the company’s growth prospects, inherent risks, and both positive and negative factors influencing its outlook. Transcorp Power is perceived to be on a growth trajectory, marked by significant its notable operational efficiency aimed at delivering longterm value to investors.
• Recognizing the impact of key transformative reports in industry, TPP has seized the opportunities arising from the evolving dynamics of the power value chain on both domestic and global fronts (laying footprints in markets outside Nigeria).
• The company has consistently endeavored to enhance its capacity utilization, thus gaining increased market share in the process.