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
Five securities pulled down the NASD Over-the-Counter (OTC) Securities Exchange by 1.72 per cent on Friday, August 14, cutting the market capitalisation by N47.04 billion to N2.689 trillion from N2.727 trillion, and slicing the NASD Security Index (NSI) by 78.37 points to 4,465.83 from 4,532.03 points.
11 Plc led the price decliners yesterday after its price went down by N15.03 to N230.00 per share from N245.03 per share. MRS Oil Plc weakened by N13.20 to N118.80 per unit from N132.00 per unit, Central Securities Clearing System (CSCS) Plc slid by N10.30 to N99.46 per share from N109.76 per share, Okitipupa Plc fell by N6.99 to N270.01 per unit from N277.00 per unit, and Afriland Properties Plc dipped by N2.00 to N20.00 per share from N22.00 per share.
Business Post reports that the OTC securities exchange recorded four gainers during the session, led by FrieslandCampina Wamco Nigeria Plc, which appreciated by N9.85 to N169.85 per unit from N160.00 per unit. IPWA Plc gained 70 Kobo to close at N10.41 per share versus N9.71 per share, Industrial and General Insurance (IGI) Plc rose by 4 Kobo to 54 Kobo per unit from 50 Kobo per unit, and Geo-Fluids Plc improved by 1 Kobo to N2.06 per share from N2.05 per share.
The volume of trades soared by 64.8 per cent to 3.2 million units from the previous session’s 1.9 million units, the value of transactions jumped by 78.2 per cent to N375.7 million from N210.8 million, and the number of deals surged by 35.3 per cent to 46 deals from 34 deals.
Great Nigeria Insurance (GNI) Plc was the most traded stock by value on a year-to-date basis, with 3.4 billion units valued at N8.4 billion, followed by Infrastructure Credit Guarantee (Infracredit) Plc with 2.3 billion units sold for N6.5 billion, and CSCS Plc with 79.0 million units exchanged for N5.7 billion.
GNI Plc also closed the day as the most traded stock by volume on a year-to-date basis, with 3.4 billion units worth N8.4 billion, followed by Infracredit Plc with 2.3 billion units transacted for N6.5 billion, and Resourcery Plc with 1.1 billion units traded for N415.7 million.
By Dipo Olowookere
The dominance of the bears on the Nigerian Exchange (NGX) Limited was consolidated on Friday, after further inflicting an 0.12 per cent loss at the close of trading activity.
All the key sectors of the local stock market turned red yesterday as a result of sustained profit-taking, though the industrial goods space was flat.
The insurance counter lost 1.49 per cent, the energy index shed 0.63 per cent, the consumer goods segment declined by 0.46 per cent, and the banking sector tumbled by 0.23 per cent.
Consequently, the All-Share Index (ASI) retreated by 398.18 points to 242,619.20 points from 243,017.38 points, and the market capitalisation receded by N257 billion to N156.624 trillion from N156.881 trillion.
Fortis Global Insurance lost 9.31 per cent to trade at N2.63, Omatek depreciated by 9.04 per cent to N1.51, John Holt slipped by 9.00 per cent to N9.10, RT Briscoe slumped by 7.94 per cent to N11.60, and Dangote Sugar went down by 7.79 per cent to N64.55.
But International Energy Insurance gained 9.92 per cent to sell for N5.32, Trans-Nationwide Express appreciated by 9.65 per cent to N2.84, Guinea Insurance improved by 6.67 per cent to 80 Kobo, Regency Alliance grew by 6.25 per cent to 85 Kobo, and Japaul jumped by 5.36 per cent to N2.95.
The market breadth index remained negative, with 30 price losers and 21 price gainers, indicating weak investor sentiment.
The level of activity contracted yesterday, with the trading volume, value, and number of deals down by 66.67 per cent, 10.65 per cent, and 5.60 per cent, respectively.
This was because market participants transacted 1.4 billion shares worth N45.3 billion in 39,134 deals during the session compared with the 4.2 billion shares valued at n50.7 billion traded in 41,454 deals on Thursday.
Fortis Global Insurance was the most active equity for the day, with a turnover of 874.1 million units valued at N2.4 billion, Cornerstone Insurance sold 100.3 million units worth N506.5 million, Universal Insurance traded 56.7 million units for N44.5 million, Sterling Holdings exchanged 53.3 million units worth N402.9 million, and MTN Nigeria transacted 44.6 million units valued at N31.4 billion.
By Adedapo Adesanya
The Naira maintained stability against the United States Dollar in the different segments of the foreign exchange (FX) market on Friday, August 14, according to data obtained by Business Post.
At the Nigerian Autonomous Foreign Exchange Market (NAFEM), the local currency remained unchanged at N1,357.65/$1, but lost N6.05 against the Pound Sterling to trade at N1,840.10 versus the previous session’s N1,834.05/£1, and depreciated against the Euro by N4.70 to sell for N1,571.70/€1 compared with the preceding day’s N1,567.00/€1.
At the black market, the Nigerian currency traded flat against the Dollar at N1,395/$1, but gained N3 at the GTBank forex desk to quote at N1,364/$1 versus Thursday’s exchange rate of N1,367/$1.
Data from the Central Bank of Nigeria (CBN) showed that interbank FX transactions surged by 51.2 per cent to $119.594 million from $79.097 million. These transactions were executed in 137 deals, higher than the 98 deals recorded a day earlier.
FX inflows from exporters, remittances and other sources, alongside demand from importers and individuals requiring Dollars, continue to shape market conditions.
Meanwhile, the cryptocurrency market recovered yesterday after experiencing a downturn in the previous sessions following reports that index provider MSCI has proposed new “non-operating company” screens for its Global Investable Market Indexes. Although the framework does not explicitly target cryptocurrency, it evaluates whether a company’s core operating assets constitute more than 50 per cent of its total holdings.
Heavy digital asset treasury adopters, including Strategy and Metaplanet, fail the proposed criteria and face potential removal during upcoming index rebalancings. While inclusion in major equity benchmarks previously allowed passive index funds and ETFs to automatically acquire these stocks, their removal could trigger forced institutional selling.
Dogecoin (DOGE) grew by 0.7 per cent to $0.07, Binance Coin (BNB) expanded by 0.6 per cent to $611.34, Ethereum (ETH) added 0.4 per cent to trade at $1,879.65, and Bitcoin (BTC) increased by 0.2 per cent to $63,045.87, with Ripple (XRP), the US Dollar Tether (USDT), and the US Dollar Coin (USDC) flat at $1.00, respectively.
But Cardano (ADA) lost 1.2 per cent to trade at $0.1795, TRON (TRX) shed 0.4 per cent to finish at $0.3323, and Solana (SOL) declined by 0.2 per cent to $75.60.
