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SEPLAT FY 2020 - Impairment charges pin Seplat in a loss position

Impairment charges pin Seplat in a loss position

• Seplat’s numbers were reflective of the low crude demand and low oil price environment, as Liquid and Gas sales took a hit. Despite improved working interest capacity with the Eland assets, working interest rose by only  10.08% YoY to settle at 51,183 bpd – within guidance, but reflects the impact of the OPEC+ quotas and fall in crude oil demand in 2020. Expenses from maintenance and increased Royalties considering the additional blocks weighed on Net income as PAT came in at a loss of N30.72 billion. Our 2021 Target price of N581.44 reflects expected improved revenue performances but also takes into consideration the risks in the oil market, as well as how OPEC quotas develop.
• Global oil market realities reflect on Seplat Revenue segments: Seplat’s FY2020 topline declined by 10.85% YoY to print at N190.82 billion. This is following a 1.01% fall in Crude oil sales and 2.80% fall in Gas sales. Whilst N20.54 billion in Gas processing revenues was realized in 2019, none was realized in 2020. With the addition of the Ubima and OML 40 fields following the Eland acquisition, working interest by 10.08% YoY to settle at 51,183 bpd – within guidance, but reflects the impact of the OPEC+ quotas and fall in crude oil demand in 2020. Gross Profit fell by a notable 63.09% YoY to N44.83 billion. This decline was exacerbated by the heightened Cost of sales Seplat incurred in 2020. As expected, due to the Eland assets acquired, Cost of Royalties and Crude handling fees rose by 23.03% and 14.66%, while depreciation and depletion came in at N49.07 billion.
• Net finance expense rose by 193.10% YoY following the combination of a rise in finance expense (+81.23% YoY) and a fall in finance income (-85.46% YoY) (the rise in finance costs came majorly due to higher interest on bank loans). Finance income which constitutes of interest income from short-term fixed deposits reflects the depletion the in general interest rates environment. The CBN also revised the savings rates (30% of MPR to 10% of MPR). This higher net finance expense dragged Loss before Tax lower by 132.11% YoY to N28.87 billion. Subsequently, Loss after Tax declined by 124.2% YoY to N30.71 billion.
• Looking ahead to FY21, we expect improved liquid and gas sales as the global oil market recovers from the depressed state it was in 2020. With a full-year production guidance of 48,000bpd – 55,000bpd, we expect that Seplat will fall within guidance, whilst factors such as OPEC+ quotas limit production reaching the upper band. We expect topline in 2021 to grow by 41.21% YoY to N269.60 billion, whilst PAT is forecasted to rise to N74.93 billion at the end of the year.
• With forecasted EBITDA of N151.24 billion and 2021 EV/EBITDA set at 3.17, we have a 2021 Target Price of N581.44 which based on today’s close is a recommendation of a NEUTRAL on the stock.