Geregu Power Plc, Nigeria’s first listed power generation company, has released its 2024 nine-month results, showing that pre-tax profits doubled to N36.2 billion.

This compares to the N17.4 billion in pre-tax profits reported in the corresponding period of 2023 representing a 107% increase.

The company reported a profit after tax of N24.1 billion. When annualized, Geregu Power’s profits are around N32.1 billion, suggesting the company’s profits is growing at a compounded annual growth rate (CAGR) of 23% over a 5 year period. It reported a profit after tax of N16 billion in 2023.

In addition to strong earnings growth, Geregu Power’s share price has surged by an impressive 188% year-to-date, reflecting positive investor sentiment and confidence in the company’s growth potential.

Key highlights 9 Months

• Revenue: N112.5 billion, +102%
• Gross Profit: N54.6 billion, +89.2%
• Operating Profit: N37 billion, +80.1%
• Net finance cost: (N753 million), -68.6%
• Pre-tax Profit: N36.2 billion, +107.4%
• Profit after tax: N24.1 billion, +111.9%%
• EPS: N9.63, +N4.54
• Cash Balance: N40.4 billion
• Net Asset: N49.2 billion
• Total Assets: N221 billion

Commentary

Profitability growth

A review of the company’s financial statements reveals that Geregu Power generated a total revenue of N112.5 billion, representing a 102% increase year-on-year.

• For the quarter ending September 2024, the company reported a revenue of N31.9 billion, up from N27 billion in the same period of 2023.
• The revenue breakdown reveals that N71.4 billion was generated from energy sales, while N41.1 billion came from capacity charges.
• Despite inflationary pressures and rising costs, Geregu Power maintained strong gross margins of over 41%, though this was slightly below its historical margin of 50%.
• The company has projected a pre-tax profit of N16.8 billion and a profit after tax of N11 billion for the final quarter of 2024.
• If achieved, this could take its full-year pre-tax profit to approximately N53 billion, representing an impressive 118% year-on-year increase in profits.

This projection highlights the company’s potential to continue its robust earnings growth despite operating at around 50% capacity due to grid constraints and market challenges.

Impact of Industry developments

Geregu Power’s performance has been buoyed by recent positive developments in Nigeria’s electricity industry.

• Several government initiatives aimed at addressing chronic issues within the power sector, including reforms of the Transmission Company of Nigeria (TCN) and increased private sector involvement, have created a more favorable operating environment for power generation companies (GenCos) like Geregu.
• In 2023, the Nigerian Electricity Regulatory Commission (NERC) approved higher electricity tariffs, which have positively impacted the profitability of generation companies by ensuring a better alignment between costs and revenues.
• Industry stakeholders expects another round of tariff increases in 2024 but this is increasingly unlikely for political reasons.

Additionally, ongoing investments in grid infrastructure and the push for privatization of more critical power assets are expected to further enhance Geregu Power’s operating environment, allowing it to unlock more of its capacity.

Share Price and Growth Potential

Geregu Power’s share price, which is up 188% year-to-date, currently reflects a price-to-earnings (P/E) ratio of 102x, positioning the company as a high-growth stock in the eyes of investors.

• The doubling of its profits while operating at just 50% capacity highlights its significant growth potential.
• With a compounded annual growth rate (CAGR) of 23% for profits, investors are clearly betting on Geregu’s ability to expand its earnings even further in the near future.
• However, the company’s high P/E growth (PEG) ratio suggests that while it is considered overvalued in terms of current earnings, there is room for further profit expansion.
• Indications suggest that Geregu Power is exploring potential acquisitions to drive this growth, a move that could significantly increase its capacity and revenue base.

Dividend Payouts and Investor Confidence

Geregu Power has also been a consistent dividend payer, with an average payout ratio exceeding 100% in the last three years.

• This, combined with its robust performance in 2024, has made the stock particularly attractive to income-focused investors.
• With continued improvements in capacity utilization and favorable industry conditions, the company is well-positioned to sustain its dividend payouts and deliver strong shareholder returns.

Geregu Power is once again an early flier by becoming one of the first companies to release earnings following the end of the third quarter.