Economy
Seplat Plc: Upbeat Outlook in 2018 But Risk Persists
By Dipo Olowookere
Analysts at ARM Research have disclosed that beyond 2017, they expect a more improved performance by Seplat Petroleum Development Company Plc (Seplat).
In its report released yesterday titled ‘Seplat Plc – In the clear,’ ARM research noted that starting off in 2018, it expects the company’s exports to rise largely reflecting the planned completion of the Escravos pipeline which offer a third export route for the company.
ARM Research said it revised its estimates for Seplat and increased its fair value estimate (FVE) to N518.74/share (previously N346/share) after the lifting of the force majeure on the TransForcados Pipeline (TFP) alongside upgrade at the alternative route (Warri refinery).
In the report obtained by Business Post, ARM Research said, “We see substantial upside in earnings in 2018F where we expect weighty ramp-up in exports, benign cost, and earnings derisk (opening 2 additional evacuation routes) to drive a stellar performance. On basis of valuation, Seplat trades on 2018F P/E of 8.6x which is at 30% discount to its EMEA peers.”
Earlier this month, Seplat’s management reported it has received notification from the operator of TPS (SPDC) on the lifting of the force majeure on the pipeline at the end of May 2017.
The company further stated that it has successfully reinstated production levels at the OMLs 4, 38 and 41 to net working interest production levels of 56kboep/d. Also, Seplat informed that upgrade at the Warri refinery will be completed by Q2 17, the report said.
“Our cautious view with regards to project completion and ramp up in export guides our 180 days downtime forecast for 2017E (previously 280 days).
“Consequently, we revise working interest production for 2017E to 39.27bopd (+52% YoY) to drive revenue 48% higher YoY to $376.6million – Oil revenue (+50% YoY to $222.7million) and Gas revenue (+46% YoY to $153.8million).
“We recall from our FY 16 earnings update ‘Striking FY 16 loss: is Seplat off the hook?’ where we noted that Seplat will need its working interest production to cross 32kbopd before the company can post a profit.
“Thus, given the earlier than expected re-opening of TFP to drive higher production, our estimate implies PAT of $27.3million for FY 17E (2016: loss after tax of $166million),” the report said.
Management has indicated it was working with the FG to complete the Escravos pipeline where it expects to export circa. 160kbpd.
Though Seplat expects this to be operational in H2 17, the report said it is less sanguine about the target completion time of the Escravos pipeline owing to government’s delayed completion on similar projects, and therefore see 2018 as a more realistic date for the project.
The combination of an upgrade at the Warri refinery as well as fully operational Trans-Forcados and Escravos pipelines drive its forecast of a 90-day downtime in 2018 with working interest production forecast of 44.8bopd (+14% YoY) and over four-fold increase in PAT to $84.1million, the research report stated.
“Farther out (2019-2022F), Seplat’s intention to make the Escravos pipeline its primary route guides to lower reconciliation cost.
“Consequently, we forecast an average working interest production of 50kbopd and mean PAT of $95million over our forecast period. Another catalyst to earnings is Seplat’s operated $1.3bilion ANOH gas and condensate project which a final investment decision (FID) for the upstream and midstream elements is expected in H2 2017 and should guide a revision to forecast. Irrespective, downside risk to earnings persist.
“Ongoing national security concerns with recurrent threat by new militant groups in the Niger delta region pose risk to production and export volumes from pipeline attacks.
“To add, oil prices below our $40/bbl. Estimate would result in a downward revision to our estimate.
“The stock currently trades at an FY 17E and FY 18F P/E of 22x and 8.6x compared to 15.4x and 12x for its EMEA peers. We forecast a sturdy 5-year earnings CAGR of 55%. Cumulative impact of the adjustments results in an attractive valuation with NAV per share of its oil and gas assets at $2.19 and $0.43 respectively having applied 35% discount to asset values to reflect our risk to future earnings.
“The foregoing, combined with our exchange rate forecast of N360/$ for 2017, drives our FVE higher to N518.74 (previously N346).
“Our FVE is at a 13% premium to the last closing price of N460. We have an OVERWEIGHT rating on the stock,” ARM Research stated in the report.
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By Adedapo Adesanya
NASD Over-the-Counter (OTC) Securities Exchange remained in the negative territory after it further depreciated by 0.64 per cent on Friday, July 24, despite recording four price gainers.
The NASD Security Index (NSI) dropped 27.4 points at the close of business to settle at 4,294.75 points versus the previous day’s 4,383.48 points, while the market capitalisation gave up N16.49 billion to end at N2.577 trillion, in contrast to the N2.594 trillion it ended a day earlier.
The bourse was down during the session amid heavy sell-offs, with the volume of transactions skyrocketing by 693.9 per cent to 2.99 million units from Thursday’s 377,635 units.
Equally, the value of trades went up by 71.6 per cent to N69.4 million from N40.4 million, and the number of deals increased by 41.0 per cent to 55 deals from the preceding day’s 39 deals.
Great Nigeria Insurance (GNI) Plc remained the most active stock by value on a year-to-date basis, with 3.4 billion units worth N8.4 billion, trailed by Infrastructure Credit Guarantee (Infracredit) Plc with 2.3 billion units sold for N6.5 billion, and Central Securities Clearing System (CSCS) Plc with 75.6 million units traded for N5.4 billion.
GNI Plc was also the most active stock by volume on a year-to-date basis, with 3.4 billion units exchanged for N8.4 billion, trailed by Infracredit Plc with 2.3 billion units transacted for N6.5 billion, and Resourcery Plc with 1.1 billion units valued at N415.7 million.
The market ended the session with four price gainers and two price losers, led by FrieslandCampina Wamco Nigeria Plc, which lost N7.44 to trade at N136.19 per share compared with the previous day’s N143.63 per share, and CSCS Plc, which declined by N1.64 to N93.63 per unit from N95.27 per unit.
But MRS Oil gained N13.50 to sell at N148.50 per share versus N135.00 per share, Afriland Properties Plc advanced by 56 Kobo to N17.41 per unit from N16.85 per unit, UBN Property Plc surged by 18 Kobo to N1.93 per share from N1.75 per share, and Food Concepts Plc climbed by 1 Kobo to N2.50 per unit from N2.49 per unit.
By Dipo Olowookere
Nigeria’s stock exchange succumbed to profit-taking on Friday, losing 0.19 per cent when the closing gong was hit at 4 pm.
Shares in the banking and energy sectors influenced the decline suffered by the Nigerian Exchange (NGX) Limited during the session, as they respectively closed lower by 0.40 per cent and 0.04 per cent.
The industrial goods index was flat yesterday, while the insurance counter gained 0.68 per cent and the consumer goods space chalked up 0.25 per cent. The gains by these two segments could not keep Customs Street in the green territory at the close of business.
As a result, the All-Share Index (ASI) retreated by 474.00 points to 247,357.40 points from 247,831.40 points, and the market capitalisation decreased by N306 billion to N159.588 trillion from N159.894 trillion.
Presco dropped 10.00 per cent during the trading day to close at N2,070.00, Thomas Wyatt crumbled by 9.93 per cent to N3.63, Trans-Nationwide Express plunged by 8.44 per cent to N2.82, Royal Exchange slipped by 7.86 per cent to N1.29, and LivingTrust Mortgage Bank shrank by 7.32 per cent to N3.80.
On the flip side, C&I Leasing improved by 9.48 per cent to N6.35, Cornerstone Insurance rose by 9.09 per cent to N6.00, RT Briscoe jumped by 8.61 per cent to N13.25, Honeywell Flour expanded by 7.38 per cent to N17.45, and Africa Prudential increased by 6.98 per cent to N13.80.
Despite the poor performance, the local bourse recorded a positive market breadth index after finishing with 35 price gainers and 25 price losers, representing strong investor sentiment.
It was a relatively quiet market on Friday, as the activity level dropped, with the trading volume down by 27.72 per cent to 565.5 million units from 782.4 million units, and the trading value contracted by 46.89 per cent to N29.9 billion from N56.3 billion, while the number of deals executed by investors soared by 16.03 per cent to 53,688 deals from 46,273 deals.
Access Holdings was the busiest stock for the session, with a turnover of 128.0 million units sold for N3.8 billion, First Holdco transacted 35.4 million units worth N4.3 billion, Chams exchanged 34.8 million units valued at N154.3 million, Zenith Bank traded 30.4 million units for N3.9 billion, and UBA sold 30.4 million units worth N1.5 billion.
By Adedapo Adesanya
The Naira marked a whole week of appreciation against the United States Dollar on Friday, July 24, further gaining N5.67 or 0.41 per cent to close at N1,362.09/$1 in the Nigerian Autonomous Foreign Exchange Market (NAFEX) compared with N1,367.76/$1 it ended on Thursday.
Equally, the local currency appreciated against the Pound Sterling in the official FX market yesterday by N10.83 to trade at N1,813.62/£1 versus the preceding day’s N1,824.45/£1, and improved against the Euro by N7.68 to settle at N1,549.10/€1, in contrast to the N1,556.78/€1 it was exchanged a day earlier.
However, at the parallel market and GTBank forex counter, the Nigerian currency remained unchanged against the greenback during the session at N1,400/$1 and N1,379/$1, respectively.
The Central Bank of Nigeria (CBN) buffer has been strengthened with sustained foreign portfolio inflows and robust foreign reserves, which stand above $52 billion.
The apex bank’s policy signals that the Naira will be stronger in the near term, with Nigeria clearing hurdles with FX reforms and settlement of all backlogs.
However, some traders expect that pressure may come due to foreign-currency buying from fuel importers as they make Dollar purchases to build inventories.
Meanwhile, Bitcoin (BTC), in the digital currency landscape, trimmed recent gains as it fell by 2.3 per cent to $63,787.73.
The weak action in the AI momentum trade is feeding through to crypto as well.
Further, Cardano (ADA) dropped 3.7 per cent to close at $0.1615, Solana (SOL) dipped by 2.8 per cent to $73.71, Ripple (XRP) crashed by 2.3 per cent to $1.08, Ethereum (ETH) slid by 1.9 per cent to $1,851.58, Dogecoin (DOGE) retreated by 0.8 per cent to $0.0694, Binance Coin (BNB) contracted by 0.7 per cent to $564.18, and TRON (TRX) lost 0.5 per cent to trade at $0.3292, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) traded flat at $1.00 each.
