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SEPLAT ENERGY PLC 9M'21 Earnings Release - Forcados downtime, increased taxes drag profit

Early today, Seplat Energy Plc released its 9M’21 results, reporting a 19% y/y rise in revenue to $460 million, 4% below our estimate. Meanwhile, an elevated tax expense of $36 million in the third quarter weighed on 9M net profit, which came in at $35 million, significantly underperforming our estimate of $61 million. While we note that Seplat recorded a loss in Q3 standalone, the Board, however, declared an interim dividend of 2.5 cents per share, in line with the quarterly dividend payout proposed at the start of the year. In light of the recent global energy crisis and output challenges faced by the company, we have revised our expectations for Seplat and now expect 2021 full-year revenue to come in at $636 million (+20% y/y), while we lowered our net income estimate to $54 million (previous: $89 million). These revised projections give us a 12-month target price of ₦775.14 (previous: ₦799.48); thus, we maintain our HOLD rating on the counter.

Looking ahead, we expect to see an improvement in Q4 oil output, given that production has recovered strongly from the shut-in experienced in Q3. We see Q4 oil output increasing 3% q/q to 1.7 mbbls, taking output for the full year to 7.2 mbbls (excluding underlift). Meanwhile, we note that the recent energy crisis in Europe and South-East Asia may continue to lift oil prices in the coming months. Based on these premises, we expect Q4 oil turnover to come in at $148 million (+32% y/y). Similarly, with force majeure now lifted, we expect gas output to gradually recover to Q2 run rate of 12.1 Bscf. This takes our projection for Q4 gas revenue to $28 million. Overall, we expect 2021 aggregate revenue to come in at $636 million (+20% y/y), while we expect net profit to print at $54 million (2020: net loss of $85 million).