Equity report - Seplat Petroleum Development - Attractive valuation, gaping upside
- Following the release of Seplat Q2 19 result, we revise our FY19E total oil production estimate higher to 50,266 boepd (previous: 49,765boepd) and crude oil price to $63.9/bbl. (previous: $60/bbl.). Coupled with a surprise gas toll revenue of $67 million in Q2, we raised 2019E revenue to $701 million (previous: $656 million). Also, we revised our capex for FY19E lower to $157 million, following postponement of capex plans. Based on the foregoing, our EPS and FCF/s for 2019E were revised higher to $0.33 and $0.12, from previous estimate of $0.31 and -$0.02, respectively. Our FVE on the stock is revised higher to N828.90 (previous: N782.15), translating to a STRONG BUY rating with a 69% upside from current trading price of N490. SEPLAT continues to trade at attractive levels, with TTM P/E and P/FCF of 2.2x and 2.6x compared to Bloomberg MEA peers of 12.9x and 7.7x respectively.
- Beyond 2019E, we increase our revenue forecast for FY20E to $766 million (previously $673 million), as we are more optimistic of a boost to production upon completion of capex investments, including workovers in 4 Sapele producing wells, 3 Ovhor wells and Ohaji South 1&2 wells -- adding over 10kbpd in gross production. For gas, the Oben booster compression is expected to be completed next year. As a result, estimated production for 2020E increased to 61.8kboe/d from 57.3kboe/d – oil: 33,330bpd and gas: 165mmscfd.
- Surprises boost Q2 earnings. Seplat reported EPS growth of 25% YoY to $0.15 in Q2 19 supported by a surprise bump in top line from gas toll revenue of $67 million (Ex-toll, revenue would have declined 21% YoY) and lower tax rate (-19ppts), both of which neutered $40 million impairment charge on NPDC cash calls receivables to support PAT growth of 25% YoY to $86 million. That said, Seplat reported positive cashflow position, with FCF increasing to $164 million from $63 million in Q1 19, but lower than $181 million in Q2 18. This translated to FCF/share of $0.29 (Q2 18: $0.32) while TTM FCF yield printed at 50% (FY 18: 41%).
- That said, we still see upside risks to earnings stemming from the on-going ANOH gas project (See previous report: ) which we are yet to incorporate to our model. On the flip side, downside risks to earnings is a nosedive in oil prices below $50/bbl. compared to our $64/bbl. projection over 2019.
ARM Securities Limited is a full-service brokerage house that offers best-in-class brokerage services to local as well as foreign private and institutional investors. Formerly known as Hamilton Hammer, the Company commenced operation in 1994 and was acquired by ARM Investment Managers in 2008--an acquisition which has successfully re-positioned the company as a recognized brokerage firm in Nigeria. The Company is a dealing member of the Nigerian Stock Exchange (NSE) and is regulated by Securities and Exchange Commission (SEC). ARM Securities research team provides insightful commentaries on the Nigerian economy and its equity and debt markets using an approach which incorporates a thorough understanding of the fundamentals of the industries and companies under coverage. The research therefore adopts an integrated methodology of top-down analysis and bottom-up stock selection, which focuses on publicly quoted companies on the Nigerian Stock Exchange that are judged to offer the highest potential for earnings growth. In addition, its analysts provide periodic commentaries on a range of topical global and local issues which provide investing clients with a holistic view of the opportunities and risks in today’s financial market landscape.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.