What's driving the resurgence of the Transcorp price?

March 22, 2011

Transcorp attained N9.25k sometime in 2006/7, getting as high as N9.71k - since then
however, the stock price have steadily dropped to a rock bottom N0.50k – a consequence of
the myriad of internal and external challenges to the firm which included some change
management setbacks, project execution and third party pull-back, management
indiscretion and exposure to a significant level of political risk in previous business model.
And then suddenly about four weeks ago we see a significant increase in interest – leading
to a close of N0.81k today (and N0.85k at the time of publishing) with YTD appreciation of
70%. What's going on and what's driving this jump?

While savvy investors might say that the resurgence started with the successful conduct of
the AGM, informed analysts however believe that the Nicholas Okoro-led management set
the pace for this resurgence with the successful and deft management of the loan overhang
on the company leading to the declaration of N490.89 million PAT in their Q3 2010 result.

This was rapidly followed by announcements that reinforced the fundamentals of a new
emerging Transcorp. Yet, analysts remained as skeptical as they were cautious. To
underscore this skepticism, three key hurdles were identified as being germane to the
determination of a fundamental basis to consider the stock viable again, viz:
1. Re-access the business model and pay closer attention to the key cash cows; including
increasing its stake in its hotel business, particularly the Hilton Abuja;
2. Find a credible partner for its Oil license and move to execution phase; and
3. Obtain refund on NITEL commitments to fund growth and expansion programme of the
areas of interest.

Analyst are therefore of the opinion, that the stock’s current value is reflective of the
markets understanding that the positive developments are steeped in fundamentals.

The recent partnership with SACOIL on OPL 281 with a Farm-In fee of over $30m which
Transcorp received in order to seed 40% of its equity could not have come at a better time.
It came on the heels of a major endorsement of the management by the Bureau of Public
Enterprises (BPE) and it provided the impetus to get investors off the sidelines.

Transcorp Plc: Performance outlook after positive pronouncements

Research has indicated that the significant uptrend observed in the price movement of
Transcorp Plc is traceable to the positive news coming out of the firms – with corresponding
growth noted in volume and value traded.

Prior to the announcements (i.e. 13 trading sessions back), there was no price movement
as the stock remained stagnant at nominal value of 50k (indeed since May 10 2010).

However, as clearly shown in table below, the volume traded surged above 1000% on
February 28 2011 on the back of good news about Transcorp partnering with SacOil. This
initiated the momentum for the consistent volume and value growth considerably.
 Announcements Outlook After Announcement Before Announcement
Date Price %Change Volume Value (N) Date Price %Change

Transcorp Hilton is a success story

2/25/2011 under current Management – BPE 0.5 685,000.00 342,500.00 2/7/2011 0.5
Transcorp partners SacOil SA,
2/28/2011 receives $30m for Oil Block 0.5 0.00% 9,522,814.00 4,764,907.00 2/8/2011 0.5 0.00%
3/1/2011 0.5 0.00% 12,299,055.00 6,180,527.50 2/9/2011 0.5 0.00%
3/2/2011 0.5 0.00% 10,928,553.00 5,474,513.50 2/10/2011 0.5 0.00%

3/3/2011 Transcorp Plc: Farm-in Agreement - 0.5 0.00% 11,887,891.00 5,961,228.38 2/11/2011 0.5 0.00%
3/4/2011 0.5 0.00% 18,569,741.00 9,478,167.91 2/14/2011 0.5 0.00%
3/7/2011 0.52 4.00% 20,384,478.00 10,599,908.56 2/16/2011 0.5 0.00%
3/8/2011 0.54 3.85% 21,450,067.00 11,580,726.18 2/17/2011 0.5 0.00%
BPE assures investors over equity in
3/9/2011 Transcorp 0.56 3.70% 14,914,600.00 8,351,926.00 2/18/2011 0.5 0.00%
3/10/2011 0.58 3.57% 5,796,743.00 3,362,110.94 2/21/2011 0.5 0.00%
3/11/2011 0.6 3.45% 1,574,768.00 944,860.80 2/22/2011 0.5 0.00%
3/14/2011 0.63 5.00% 1,372,360.00 864,586.80 2/23/2011 0.5 0.00%
3/15/2011 0.66 4.76% 6,556,118.00 4,327,037.88 2/24/2011 0.5 0.00%
3/16/2011 0.69 4.55% 16,617,823.00 11,466,295.47
3/17/2011 0.72 4.35% 5,677,900.00 4,088,088.00
3/18/2011 0.75 4.17% 8,179,200.00 6,134,400.00
3/21/2011 0.78 4.00% 21,308,208.00 16,620,402.24
3/22/2011 0.81 3.85% 2,004,900.00 1,623,969.00
Source: Proshare Research Group

The NSE announcement on March 3, 2011 on Transcorp increased the volume momentum
by 56% as against previous day of 9% growth. This gave lifting support to the stock price
moving up by 4% from its 10-months old stagnant position while the stock maintained
consistent upward trend till date.

The stock has appreciated by 32% in price with possible prospect of going further as
volume traded experienced decline considerably with growing price trend, suggesting
holding position of investors which is a direct response to their expectation of further good
news and positive development from the company.
The Real Game Changer

Whilst there is enough reason to be excited about Transcorp's recent partnership with
SACOIL; it would appear that two key potential game changers have been overlooked.

1. The funding of the work program by SACOIL within the next 18-24 months; and
2. The NITEL refunds which shareholders continue to look forward to.

It would appear that these two developments should further reinforce the belief that a
resurgence as seen in the last few weeks is not only sustainable, but viable.

As regards the current oil partnership, the real significant benefits go beyond the $30m
Farm-In fee enabling SACOIL to have a partnership interest in OPL 281. Of much
significance is the fact that in addition to this, SACOIL will fund a work program that is
required to get oil flow from the block which is expected to materialize within the next 18-
24months by which time the actual benefits will begin. According to the Farm-In agreement,
Transcorp will share 60% of the proceeds of the oil from the block. This represents a high
potential cash in-flow for Transcorp and going by the projected price of oil, the impact on
the performance of Transcorp should be favourable.

This analysis has not included the gas reserve that is contained in OPL 281 for which not
much information, perhaps rightly so, is coming from the company.

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