Geregu Power: When revenue and profit mask a cash flow problem

Geregu Power Plc's recent bond default exposed a troubling reality: revenue growth and profit figures can mask a severe cash flow problem. Despite impressive revenue growth from N71 billion in 2021 to N185 billion in 2025, the company's free cash flow fell short of expectations in 2025, generating only N19.6 billion. This discrepancy was primarily due to a surge in trade receivables, indicating that revenue was not yet translated into cash.

Geregu's pattern of paying substantial dividends, even when free cash flow was insufficient, raised red flags. In 2025, the company distributed N22.5 billion in dividends, surpassing both its free cash flow and operating cash flow. This unsustainable practice of prioritizing dividends over cash preservation could strain the company's liquidity, squeeze suppliers, and increase debt.

The dwindling cash reserves ultimately led to Geregu's bond default in 2026. The issue extends beyond just Geregu; the company's tightly held share structure, with only 18.14% of its shares available for trading, creates market inefficiencies. Minority investors face challenges exiting their positions, and information asymmetries thrive in this opaque environment.

Ultimately, the story underscores the importance of prioritizing cash flow over accounting profits and dividend payouts. Shareholders must scrutinize dividend policies to ensure they are financially sustainable. By focusing on cash generation, investors can avoid being blindsided by misleading financial metrics.