Geregu Power Inflated Valuation Spurs Stock Manipulation Fears

Femi Otedola, Chairman of Geregu Power

The fundamentals of Geregu Power, a Nigerian power generating (GENCO), with a Market Capitalization of N548 billion, do not match its high valuation, spurring concerns of potential market manipulation.

The utility company owned by Nigerian billionaire Femi Otedola is one of the best performing stocks on the Nigerian Exchange this year.

“The valuation is a fluke in my view, not supported by fundamentals,” the lead buy-side analyst of a major Pension fund told MoneyCentral.

“It’s just a valuation someone uses to boast of net worth.”

Geregu Power stock is up +47% year to date pushing its valuation to a lofty 54 times trailing earnings according to MoneyCentral calculations. This compares with Latin America and Asian peers that trade at much lower valuations.

Utilities such as Geregu Power, usually trade at low valuations since they are regarded as stable quiet (boring) businesses.

Fig 1: Geregu Valuation Vs Peers

Meanwhile, the Net income of Geregu Power dipped by 50.51 percent to N10.17 billion in December 2022, from N20.55 billion as at December 2021.

Revenue was down 32.89 percent to N47.61 billion in December 2022 from N70.95 billion the previous year.

Femi Otedola who is the Chairman of Geregu Power, a company he took public in the third quarter of last year owns 2.388 billion worth of shares indirectly through Amperion Power Distribution Limited, which is 95.56 percent of the company’s total ordinary shares of 2.50 billion, according to data from the NGX website.

The free Float of the Company as at 31 December 2022 was 111,073,957 representing just 4.44%, of outstanding shares.

Free float refers to shares of a company that are not restricted and are available to the public for trading in the secondary market.

Firms can manipulate their stock price by restricting the tradable float, according to Robin Greenwood an economist, and Professor of Finance and Banking at Harvard Business School.

“When risk averse investors have differences of opinion and are short-sale constrained, reductions in the float freeze out pessimistic investors, pushing up prices,” Greenwood said in a Harvard Research Paper.

Geregu Power’s N46.1 billion in trade receivables is also a sticking point for its auditors.

“The company bills its sole customer monthly based on energy and capacity charges. The risk of impairment to trade receivables relates to both capacity and energy charges as the customer does not pay as and when due,” PricewaterhouseCoopers, its auditor said.

Complicating matters is a further N38.49 billion in receivables due from related party Amperion Power Distribution Company Ltd, a company controlled by Geregu Power Chairman Femi Otedola.

This brought trade and other receivables to a total of N76.944 billion.

The sky-high valuation of Geregu is “a castle in the sand” and “Just a valuation jamboree,” another analyst told MoneyCentral.

“Its share price is perhaps being propped up to secure leverage from a “lazy” or compromised lender,” he said.

Geregu Power announced last year it was in talks with Afreximbank for a potential acquisition of a portion of its shares.

The firm had N75.52 billion in outstanding debt as at December 2022, including, N32.99 billion borrowed from Fidelity Bank Plc to help pay down the Amperion acquisition facilities, and a N40.085 billion unsecured corporate bond, issued in July 2022.


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