Seplat Plc - A clear step up in 2018
- In this report, we look more closely at recent updates and events over the past months, including the FY 2017 result and management call, by Seplat Petroleum Development Company Plc. (Seplat) with a focus on cash flow generation and impact on shareholder’s value, given no change in our views on production, prices, and hedging. Much of the improvement in earnings relative to our earlier forecast stems from improved cash position on the back of an extended debt maturity profile, unrecognized capital allowance, reserve accretion and higher receipt from crude oil lifted in OML 55. Given the foregoing, we see the potential for a strong run up in Seplat’s shares over 2018 as the pieces fall into place.
- Consequently, we place a BUY recommendation with an upgraded FVE of N81/share (up from N663.85/share). On basis of valuation, Seplat is trading at a 2018 P/E and P/CF of 7.2x and 2.8x relative to African peers of 21.1x and 7.01x respectively. Downside risk to our forecast remains lower oil prices of <$40/bbl. in 2019 relative to our projection of $50/bbl. in the period.
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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.
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