SEPLAT PLC Q1'18 - Outlook remains positive despite earnings miss

Outlook remains positive despite earnings miss                                                                                             

SEPLAT recently released Q1’18 earnings, reporting a profit-after-tax of $20.6 million – a comprehensive turnaround from the $19.1 million loss-after-tax reported in Q1’17. The recovery was spurred by higher crude volumes on the back of continued stability in crude production and export– lifting Q1’18 hydrocarbons production to 53.6k boed vs 20.9k boed in Q1’17. We recall that the force majeure on the Trans Forcados terminal was lifted in June 2017. Further supporting the earnings turnaround was stronger oil price (up 36% y/y to $65.78/bbl) as well as a significant decline in General & Admin expenses, down 17% y/y to $13.9 million.                                                                                        

Compared to our estimates, Q1’18 numbers came in largely mixed. Particularly, gross profit ($92.9 million) was 10% behind our $102.6 million estimate amidst lower than expected topline performance of $180.6 million vs our $190 million estimate following a 4% lower than expected hydrocarbon production. However, General & Admin expenses ($13.9 million) came in 51% better than our $28.5 million estimate and 46% lower q/q. We believe this run rate might be difficult to sustain in coming quarters even as we expect higher operations uptime in FY’18.                                                                                 

After adjusting for the sharp drop in Q1’18 General & Admin costs however, our FY’18 Operating Profit forecast is relatively unchanged at $304 million. Also, after adjusting for the higher than expected Finance charges and tax in Q1’18, we revise our FY’18 PAT to $131 million (Previous: $155 million). Notwithstanding, our risked NAV/Target Price (considering 2P assets only) has increased to $2.69 (Previous: $2.38), buoyed by increase in our oil price assumption.