Economy

Seplat Plc: Will the Bulls Crossover?

Published

7 years ago

02/01/2018

Following our last note, Seplat Plc – Revision to Forecast published on Nov 7th, Seplat has returned 20.5% with YTD return of 57%.

Much of the early gains was underpinned by the lifting of force majeure on the Trans-Forcados Pipeline (TFP) which drove a marked rebound in performance in the third quarter of 2017 with the company posting profit after tax (PAT) of $22.3million, after realizing losses in six consecutive quarters.

Particularly, oil revenue at $115million almost doubled from the prior quarter, anchored by higher production of 26.4kbpd while gas sales remained resilient posting $31.5 million (+7.5% QoQ) as gross daily gas output touched a high of 352Mscfd (working interest: 111Mscfd).

At the latter, it was a play of cheap valuation and bargain hunting. In sync with our investment case for Seplat which tilts towards 2018 wherein we had projected a substantial upside in earnings hinged on balance sheet deleveraging as well as improved and more stable P&L.

Our view was premised on the company’s return to past production levels and de-risked earnings via the addition of a new export route to existing two routes.

Consequently, we had earlier forecasted a 90-day downtime in 2018 with working interest production forecast of 45.5bopd and over four-fold increase in PAT to $108.6 million (2017E: $19.4 million). In line with this adjustment, Seplat remained well positioned to relatively outperform its larger peers, trading at a 2018 P/CF of 1.7x compared to African peers’ and FTSE 350 Oil & Gas index of 5.5x and 12.05x respectively. As it stands, the stock is currently trading at a premium of 130bps to our last communicated FVE of N588.11.

So how does it look from here?

Beyond our earlier views on higher production, lower all-in cost, balance sheet deleveraging and deceleration in Capex which should drive cash-flow and ROE improvement, the recent rally in crude oil prices (Brent) and Seplat’ s tax allowance provision (estimate: $98 million) provides fresh upside to earnings.

Riding the oil price upswing. As a pure E&P play, Seplat’s earnings are more sensitive to oil prices. Consequently, we run a scenario analysis of 2018 key financial metrics at varying crude oil prices while keeping our production forecast intact. From our analysis, every $5/bbl. increase in Brent crude prices could lift 2018 earnings by ~25%; while every $5/bbl increase in long-term oil price could raise our FVE by about N45/share or 8%.

We have now raised our 2018 earnings by 26% in FY 2018, in line with the accelerated rebalancing in the crude oil market and house views on 2018 Brent price (base case of $60/bbl.). However, crude oil prices below $40/bbl. and a reappearance of insecurity in the Niger delta may trigger a downward review to earnings.

Balance sheet should de-leverage significantly. We think net debt to free cash flow will fall sizably from the current level of 1.7x to 1.2x by FY 18. Seplat is expected to rake in stronger operating cash flows of c.$300million over 2018 well above capital spending (estimate: $20 million capex). With the significant deleveraging in the balance sheet based on our estimates, there is clear capacity for enhanced shareholder return via resumption of dividend payments in 2018. Furthermore, while Seplat has no explicit dividend policy, we find that full-year dividend per share (DPS) has displayed strong correlation to its operating cash flow per share. Thus, with earnings and operating cash flow expected to rebound in FY 2018 on higher oil prices and production, we assume that DPS in FY 2018 will be $0.05.

Key Risks. Lower-than-expected oil prices and production are the key risks. The most apparent near-term driver for such a scenario would be an increase in US crude oil supply as well as the risk of OPEC falling apart. Upside risk would stem from the contrary, if oil prices increase above projected levels. Also, return of security concerns in the Niger Delta in the run-up to election is another key risk to earnings. However, with three alternative export routes, Seplat is in a better position than prior year.

Valuation is more compelling. We raise our FVE from N588.11 to N663.85 after reviewing our model and considering the possibility of higher crude oil prices. Our revised target equates to 2018 P/E and P/CF of 5.0x and 1.4x compared with African peers of 14.4x and 3.5x respectively.

Source: ARM Securities Limited

Economy

FrieslandCampina, Afriland Properties Weaken NASD Index by 0.24%

Published

2 days ago

26/04/2025

Adedapo Adesanya

By Adedapo Adesanya

The NASD Over-the-Counter (OTC) Securities Exchange fell by 0.24 per cent on Friday, April 25 after the duo of FrieslandCampina Wamco Nigeria Plc and Afriland Properties Plc landed on the losers’ table.

FrieslandCampina Wamco Nigeria Plc depreciated by N2.58 to sell at N35.37 per unit compared with the previous day’s N37.95 per unit, and Afriland Properties Plc lost 2 Kobo to close at N17.78 per share versus Thursday’s closing value of N17.80 per share.

However, Geo-Fluids Plc appreciated by 10 Kobo during the trading day to sell for N1.80 per unit, in contrast to the preceding session’s N1.70 per unit. The rise in the price of the stock could not prevent the fall of the bourse yesterday.

Consequently, the market capitalisation of the trading platform went down by N4.64 billion to N1.914 trillion from N1.918 trillion and the NASD Unlisted Security Index (NSI) declined by 7.92 points to 3,269.06 points from 3,276.98 points.

The final trading session of the week ended with a surge of 1,695.8 per cent in the volume of securities transacted to 3.7 billion units from the 206.2 milion units transacted in the previous trading day.

Equally, the value of transactions jumped by 2,592.6 per cent to N9.5 billion from N354.1 million on Thursday, and the number of deals decreased by 47.4 per cent to 20 deals from the 38 deals recorded a day earlier.

Impresit Bakolori Plc remained the most active stock by volume on a year-to-date basis with 533.9 million units sold for N520.9 million, followed by Geo-Fluids Plc with 259.3 million units worth N456.1 million, and Okitipupa Plc with 153.6 million units valued at N4.9 billion.

Also, Okitipupa Plc remained the most active stock by value on a year-to-date basis with 153.6 million units valued at N4.9 billion, trailed by FrieslandCampina Wamco Nigeria Plc with 15.6 million units worth N598.5 million, and Impresit Bakolori Plc with 533.9 million units sold for N520.9 million.

Economy

Nigeria’s Stock Market Gives up 0.30% Friday

Published

2 days ago

26/04/2025

Dipo Olowookere

stock market how to invest in US stocks in South Africa

By Dipo Olowookere

A 0.30 per cent fall was recorded by the Nigerian Exchange (NGX) Limited on Friday as a result of profit-taking in the industrial goods sector.

This was mainly caused by sell-offs in Dangote Cement Plc, which released its financial statements for the first quarter of 2025 yesterday.

The cement maker lost 10.00 per cent during the session to trade at N432.00, Regency Alliance lost 8.06 per cent to close at 57 Kobo, VFD Group depreciated by 7.57 per cent to N17.10, Chams declined by 7.27 per cent to N2.04, and Sovereign Trust Insurance crashed by 6.12 per cent to 92 Kobo.

Conversely, International Breweries, Legend Internet, and Ikeja Hotel gained 10.00 per cent each to sell for N7.70, N6.82, and N12.10 apiece, Vitafoam Nigeria surged by 9.93 per cent to N44.85, and Eterna rose by 9.92 per cent to N39.90.

The industrial goods index was down by 4.73 per cent on Friday, as the others finished in green territory.

The consumer goods space rose by 2.21 per cent, the banking sector appreciated by 1.55 per cent, the insurance counter expanded by 1.50 per cent, the energy sector increased by 0.07 per cent, and the commodity industry went up by 0.04 per cent.

At the close of transactions, the All-Share Index (ASI) went down by 321.21 points to 105,753.05 points from 106,074.26 points and the market capitalisation shrank by N202 billion to N66.465 trillion from N66.667 trillion.

The level of activity increased yesterday as the trading volume, value, and number of deals grew by 30.40 per cent, 94.23 per cent, and 17.64 per cent, respectively.

This was because investors transacted 428.1 million shares worth N20.2 billion in 14,284 deals compared with the 328.3 million shares valued at N10.4 billion in traded in 12,142 deals a day earlier.

GTCO led the activity chart with 60.7 million equities sold for N3.8 billion, Fidelity Bank traded 41.4 million stocks worth N829.3 million, Access Holdings exchanged 40.6 million shares valued at N968.3 million, MTN Nigeria sold 33.0 million equities for N8.2 billion, and Zenith Bank transacted 22.9 million stocks worth N1.1 billion.

Economy

Naira Now N1,599/$1 at Official Market, N1,605/$1 at Black Market

Published

2 days ago

26/04/2025

Adedapo Adesanya

By Adedapo Adesanya

The Naira extended its gains against the US Dollar in the Nigerian Autonomous Foreign Exchange Market (NAFEX) on Friday, April 25 by 0.22 per cent or N3.59 to sell for N1,599.42/$1 compared with the N1,603.01/$1 it was traded in the previous session.

The Nigerian currency also improved its value against the Euro in the official market by N1.36 to close at N1,818.53/€1 compared with Thursday’s closing price of N1,819.89/€1.

However, the domestic currency depreciated against the Pound Sterling in the same market segment yesterday by N1.90 to wrap the session at N2,130.44/£1 versus the preceding session’s rate of N2,128.50/£1.

At the black market segment, the Naira appreciated against the greenback on Friday by N2 to quote at N1,605/$1, in contrast to the previous day’s value of N1,607/$1.

In the cryptocurrency market, a possible regulatory progress about digital assets in the US spurred buying interest among investors during the trading session.

The chairman of the US Securities and Exchange Commission, Mr Paul Atkins, was at a crypto roundtable on Friday and he devoted his inaugural speech to assuring the industry that he will continue to remake securities policy to favor digital assets innovation.

The agency and industry have been awaiting congressional action to establish crypto market-structure oversight that will likely set guardrails, and Atkins told an audience at the SEC’s Washington headquarters that the regulator will work toward delivering “a rational, fit-for-purpose framework” for crypto.

Litecoin (LTC) rose by 3.0 per cent to $87.24, Dogecoin (DOGE) grew by 2.7 per cent to $0.1862, Bitcoin (BTC) increased by 1.3 per cent to $94,687.84, Ethereum (ETH) jumped by 1.2 per cent to $1,797.51, Cardano (ADA) improved by 0.9 per cent to $0.7235, and Ripple (XRP) gained 0.6 per cent to close at $2.20.

On the flip side, Solana (SOL) depreciated by 0.9 per cent to $151.64, and Binance Coin (BNB) lost 0.8 per cent to sell for $602.89, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) remained unchanged at $1.00 each.