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

Nigeria Makes Maiden AfCFTA Shipment to Kenya

Published

12 hours ago

20/01/2025

Adedapo Adesanya

By Adedapo Adesanya

Nigeria’s maiden shipment under the African Continental Free Trade Area (AfCFTA) has successfully arrived at the Mombasa Port in Kenya.

According to the Nigeria AfCFTA Coordination Office in a statement, the development marks a historic moment for Africa’s trade landscape.

The Senior Trade Expert at the Nigeria AfCFTA Coordination Office, Mr Olusegun Olutayo, said in line with its mandate under the leadership of the National Coordinator, Mr Olusegun Awolowo, the office had coordinated the landmark event.

He said the achievement marked a significant milestone for Nigeria in realising the vision of increased intra-African trade and economic integration championed by the agreement in line with the decision of the AU Assembly at the 31st Ordinary Session of the Assembly.

“In times of escalating geopolitical tension and looming geo-economic fragmentation, AfCFTA presents a perfect opportunity for Africa to leverage trade as a strategic instrument for enhanced market access among state parties.

“This is a historic moment, a realisation of the vision of our continent’s founding fathers and mothers.”

He also said the first consignment which was a synthetic filaments product of Nigeria’s Lucky Fibres Limited (Lush), a subsidiary of the Tolaram Group, was exported under AfCFTA preferential terms.

Mr Olutayo lauded the bold economic reforms of President Bola Tinubu, emphasising their catalytic role in enabling the country’s active participation in AfCFTA, fostering continental economic integration and industrialisation goals.

He also commended the seamless cooperation and commitment from Kenyan authorities, which exemplifies the true spirit of AfCFTA.

He acknowledged the pivotal leadership role of the AfCFTA Secretariat in fostering the success and emphasised the collaborative efforts of the Kenya AfCFTA Implementation Committee and the Kenya Revenue Authority (Customs).

According to him, the shipment, exported under AfCFTA preferential trade terms, underscores partnership, shared vision, the agreement’s potential to transform Africa’s economic landscape and pave the way for a new era of trade-driven prosperity.

The AfCFTA seeks to create a single market across Africa by reducing barriers to trade, investment, and labour.

The agreement’s goal is to increase socioeconomic development, reduce poverty, and make Africa more competitive globally.

On March 21, 2018, the AfCFTA agreement was adopted and opened for signature in Kigali, Rwanda. The agreement entered into force on May 30, 2019 and officially commenced on January 2021

Former President Muhammadu Buhari established the National Action Committee on AfCFTA (NAC) in December 2019.

Economy

Capital Market Operators Get January 31 Deadline for Licence Renewal

Published

12 hours ago

20/01/2025

Adedapo Adesanya

By Adedapo Adesanya

The Nigerian Securities and Exchange Commission (SEC) has fixed January 31 as deadline for all Capital Market Operators (CMOs) to renew their operating licence.

In a circular to the operators on Sunday, the apex regulatory agency in the country’s capital market said the annual registration renewal would last between January 1 and 31, 2025.

SEC said the annual registration renewal enforcement for CMOs was aimed at ensuring that only “fit and proper” persons operate in the capital market, warning that CMOs without valid registration will be penalised and may be excluded from capital market activities.

”This is to inform all CMOs and the general public that the annual renewal of registration of CMOs for the year 2025 will commence from January 01.

“All CMOs applying for renewal are required to include their 2025 annual subscription receipt from their respective trade groups as part of their application.

“In line with the commission’s Rules & Regulations, all CMOs are to complete the process of renewal of registration for 2025 on or before January 31 via registration renewal portal at www.eportal.sec.gov.ng,” it said.

The commission added that CMOs desiring to make enquiries or get support to complete the process should contact [email protected].

The regulator said it had in 2021 re-introduced periodic registration renewal by CMOs to create a reliable active operators’ data bank in the country’s capital market.

It said the renewal arrangement aimed at updating operators information on capital market for official use by local and foreign investors, other regulatory agencies and the public.

The agency added that the renewals would drastically reduce incidences of unethical practices by CMOs which may affect investors’ confidence and impact the capital market negatively, noting that the exercise will strengthen supervision and monitoring of CMOs by the commission.

Economy

Seven Equities Boost NASD OTC Securities Exchange by 1.24%

Published

15 hours ago

20/01/2025

Adedapo Adesanya

By Adedapo Adesanya

The third trading week of 2025 ended on a positive note at the NASD Over-the-Counter (OTC) Securities Exchange, with seven equities on the platform inspiring a 1.24 per cent growth.

Consequently, the market capitalisation of the bourse increased by N21.56 billion during the five-day trading week to N1.075 trillion from the N1.053 trillion quoted in the preceding week (Week 2) as the NASD Unlisted Security Index (NSI) expanded by 37.98 points to 3,111.91 points from the 3,073.93 points it ended in the preceding week.

In the period under review, the volume of transactions went down by 42.1 per cent to 9.45 million units from the 16.30 million units in the previous week, as the value of trades declined by 53.1 per cent to N48.4 million from the N104.11 million, with these transactions completed in 122 deals involving 15 different stocks.

Industrial and General Insurance (IGI) Plc gained 50 per cent in the week to close at 36 Kobo per share versus 34 Kobo per share, Mixta Real Estate Plc increased by 20 per cent to end at N2.58 per unit compared with the previous week’s N2.15 per unit, and Okitipupa Plc rose by 10 per cent to N39.59 per share from N35.99 per share.

Further, UBN Property Plc grew by 10 per cent to N2.20 per unit from N2.02 per unit, Newrest Asl Plc jumped by 9.9 per cent to N31.38 per share from N28.53 per share, FrieslandCampina Wamco Plc surged by 3.7 per cent to N39.65 per unit from N38.22 per unit, and 11 Plc advanced by 0.3 per cent to N256.00 per share from N255.31 per share.

FrieslandCampina Wamco Plc topped the activity chart last week by value with with N0.030 billion, 11 Plc recorded N0.009 billion, Central Security Clearing System (CSCS) Plc raked in N0.004 billion, IGI Plc followed with N0.002 billion, and Geo-Fluids Plc recorded N0.002 billion.

However, IGI Plc was the most traded instrument by volume with 7.5 million units, FrieslandCampina Wamco Plc transacted 0.77 million units, UBN Property Plc recorded 0.38 million, Geo-Fluids Plc traded 0.37 million units, and CSCS Plc posted 0.16 million units.