Geregu Power expects profit rebound to N15bn at full year

Geregu Power Plc expects to sustain its earnings rebuilding endeavour in the second half (H2) with good hopes for closing the year with after-tax profit in the region of N15 billion.

The company has fixed its problem of loss of primary gas supplies to its power generating plant and a return to the earnings growth track in the second quarter (Q2) is expected to be maintained to the full year.

The company’s interim financial report for the half-year ended June 2023, shows that both sales revenue and profit have rebounded from first quarter (Q1) drops and management’s forecasts for H2 affirm the upturn will run to full year.

Half-year operations closed with an after-tax profit of N8 billion while the third and final quarters are forecast to contribute N3.7 billion and N3.1 billion respectively to the bottom line — summing up to N14.8 billion after-tax profit at full year.

That will be a strong recovery push of 45 percent in profit for the company after it suffered a drop of 50.5 percent in after-tax profit to N10.2 billion at the end of 2022.

Loss of profit last year stemmed from the loss of revenue following gas supply constraints that caused major drops in capacity delivered and energy sent out – slashing turnover by 33 percent to N47.6 billion at the end of the year.

An upturn in revenue in the current year is equally the fact behind the profit recovery hopes of the company. Sales revenue is up from 23 percent drop to N14 billion in Q1 to a 34 percent growth year-on-year to N20.5 billion in Q2.

After-tax profit numbers have also upturned from a drop of 35.5 percent to N3.5 billion in Q1 to an increase of over 25 to N4.5 billion in Q2.

The upbeat is projected to be maintained in the second half with turnovers of N15.1 billion in the third quarter (Q3) and N17.9 billion in the final quarter.

The numbers add up to N67.7 billion sales revenue the company expects at full year. That will be a strong recovery of 42.2 percent in turnover for the company in 2023 after a drop of 32.9 percent to N47.6 billion in 2022.

The company’s two-income lines — energy sold and capacity charge — both contributed to the improved revenue situation in Q2 at increases of 29.5 percent to N12.6 billion and 42 percent to N7.9 billion respectively.

The half-year position reflects a dilution of Q1 earnings drop with Q2 improvements, which keeps the six-month earnings reading down or just slightly improved.

At N34.7 billion, the company’s half-year turnover is only 2.6 percent up year-on-year. A bit of strength was added by a 2.5 percent decline in cost of sales to N16.5 billion.

The cost-saving enabled an increase of about 8 percent in gross profit to N18.2 billion at half-year.

However, two rising costs claimed more than the increase in gross profit, resulting in a decline of 5 percent in operating profit to N13.8 billion at the end of the period.

The cost increases are impairment loss on financial assets and administrative expenses — which grew by 266.5 percent to N1.9 billion and 39.8 percent to N2.4 billion respectively over the period.

Operating profit, therefore, went down by 5 percent to close at N13.8 billion at the end of half-year operations.

Further pressure mounted from an increase of about 42 percent in net finance cost to N1.6 billion, which lowered pre-tax profit by 8.8 percent to N12.3 billion while after-tax profit dropped by 11.5 percent to N8 billion at half-year.

The hopes for realising the expected positive growth in earnings for the year, rest in realising the numbers projected for the second half.