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

Onne Area 11 Customs Command Surpasses 2024 Revenue Target by N16bn

Published

5 hours ago

05/01/2025

Business Post Contributor

By Bon Peter

The Area 11 Command of the Nigeria Customs Service (NCS) in Onne, Rivers State surpassed its 2024 annual revenue target by N16 billion.

This information was revealed to newsmen by the Customs Area Controller of the Command, Mr Mohammed Babandede, at a news conference last week.

He also disclosed that the command recently intercepted 12 containers of illicit drugs worth over N20.30 billion concealed in various items.

According to him, the content of the seized container included 1,721,100 bottles of 100ml cough syrup codeine, 510,000 tablets of 50mg Really Extra Diclofenac, 7,100,000 tablets of 225mg Royal apple Tramadol and Tramaking, 3,461 pieces of sanitary ware fittings used for concealment, 840 pieces of Chilly cutter used for concealment, and 153 cartons of TVS rubber.

“Our vigilant officers and men have successfully intercepted and seized an additional 12 containers (40 feet) of illicit medicine.

“This is a testament to our unwavering commitment to safeguarding public health, ensuring security of our nation and compliance with Nigeria’s import regulations. This also justifies our commitment to trade facilitation, transparency, effective and efficient service,” he said.

He said last year, the command received the support of different stakeholders, thanking them for working with the agency to achieve success.

“We appreciate the continued support and collaboration of all stakeholders, including the media, in amplifying our message and efforts to combat smuggling,” he said.

Mr Babandede stated that, “It is worth noting that the morale and dedication of our officers have been significantly bolstered by the Comptroller-General of Customs’ award, recognizing Area 2 Command as the Best Command in Anti-Smuggling Operations.

“This honour has further strengthened our resolve, and I assure you that we will not relent in performing our duties to protect the lives and well-being of Nigerians.”

The customs chief said earlier last year, the command was given a revenue target of N618 billion but as of December 31, 2024, it generated N634 billion, higher than the N321 billion recorded in 2023, promising to do more in 2025.

Economy

Stock Market Gains N248bn to Close at N63.166trn

Published

1 day ago

04/01/2025

Dipo Olowookere

By Dipo Olowookere

The Nigerian Exchange (NGX) Limited appreciated by 0.39 per cent on Friday as the demand for local equities continued to increase.

During the final trading session of the week, the insurance maintained its upward trend with a growth of 7.81 per cent as the banking index appreciated by 1.08 per cent, the consumer goods sector rose by 0.52 per cent, and the industrial goods counter expanded by 0.33 per cent, while the energy space went down by 0.49 per cent.

At the close of business, the All-Share Index (ASI) jumped by 406.19 points to 103,586.33 points from 103,180.14 points, and the market capitalisation increased by N248 billion to N63.166 trillion from N62.918 trillion.

The bourse recorded 67 appreciating shares and 11 depreciating shares, implying a positive market breadth index and strong investor sentiment.

Chams, Omatek, NCR Nigeria, Learn Africa, and Regency Alliance topped the gainers’ table after they gained 10.00 per cent each to finish at N2.31, 88 Kobo, N6.05, N4.95, and 88 Kobo, respectively.

On the flip side, TotalEnergies lost 9.74 per cent to trade at N630.00, CWG depreciated by 6.04 per cent to close at N7.00, Thomas Wyatt went down by 5.26 per cent to N1.80, ABC Transport crumbled by 4.07 per cent to N1.18, and UAC Nigeria shed 3.19 per cent to N31.90.

Yesterday, investors traded 709.3 million stocks valued at N8.2 billion in 13,593 deals compared with the 829.8 million stocks worth N5.7 billion transacted in 11,752 deals on Thursday, representing a slowdown in the trading volume by 14.52 per cent and a rise in the trading value and number of deals by 43.86 per cent and 15.67 per cent, respectively.

At the close of business, Chams topped the activity log with 58.1 million equities sold for N133.8 million, Veritas Kapital traded 55.1 million shares valued at N89.2 million, Abbey Mortgage Bank exchanged 50.1 million stocks for N165.5 million, AIICO Insurance transacted 39.7 million equities worth N68.3 million, and NPF Microfinance Bank sold 34.3 million stocks valued at N64.0 million.

Economy

NASD OTC Exchange Extends Good Start to New Trading Year

Published

2 days ago

04/01/2025

Adedapo Adesanya

Nigeria's Unlisted Securities Market Sheds 0.78%, NASD Shares up 8.31%

By Adedapo Adesanya

The NASD Over-the-Counter (OTC) Securities Exchange extended its positive start to the year with a 0.08 per cent rise on Friday, January 3.

The market saw a gain of N840 million, with the value of the alternative bourse growing to N1.046 trillion from the N1.045 trillion it closed a day earlier as the NASD Unlisted Security Index (NSI) made an addition of 2.43 points to wrap the session at 3,052.34 points compared with 3,049.91 points recorded at the previous session.

The appreciation posted yesterday at the NASD OTC exchange was caused by two price gainers led by Industrial and General Insurance (IGI) Plc which jumped by 2 Kobo to end at 20 Kobo per share compared with the preceding session’s 18 Kobo per share and UBN Property Plc, which improved its value by 16 Kobo to close at N1.98 per unit, in contrast to Thursday’s closing price f N1.82 per unit.

The market posted a price loser, which was FrieslandCampina Wamco Nigeria Plc as it dropped 18 Kobo to finish at N39.76 share versus the previous day’s N39.94 per share.

There was an 856.6 per cent surge in the volume of securities traded in the session to 11.3 million units from the 1.2 million units traded in the preceding session.

Equally, there was a jump in the value of shares traded yesterday by 1,078.4 per cent to N56.8 million from the N4.8 million made previously, and the number of deals increased by 22.7 per cent to 27 deals from 22 deals.

FrieslandCampina Wamco Nigeria Plc was the most active stock by value (year-to-date) with 1.4 units worth N55.8 million, IGI Plc came next with 10.6 million units valued at N2.1 million, and 11 Plc was in third with 6,45 units sold for N1.4 million.

IGI Plc closed the day as the most active stock by volume (year-to-date) with 10.6 million units sold for N2.1 million, FrieslandCampina Wamco Nigeria Plc came next with 1.4 million units valued at N55.8 million, and UBN Property Plc followed with 275,740 units worth N545,965.