Analysts Project Earnings Recovery for Seplat as Oil Prices Rise
Seplat Petroleum Development Company Plc (Ticker: SEPLAT) gained ₦89 per share at the local bourse last week as analysts’ project earnings recovery for 2021. On Friday, traded at ₦540 per share, Seplat market capitalisation printed at ₦317.760 billion on 588,444,561 shares outstanding.
After a terrible outing recorded in 2020, Seplat Petroleum Development Company earnings has been projected for strong rebound as oil prices rebound. The recent past year unsettled the indigenous oil giant’s earnings performance following the global outbreak of coronavirus.
Demand for oil plunged across the world. This led to oil price contango at a point due to lack of storage capacity. Seplat earnings was affected due to no deal condition at the time when the company was investing in capacity raising projects.
In its equity research, Vetiva Capital said Seplat situation was much worse due to an impairment loss of $145 million that had been recorded in the first quarter of 2020. This has been a pressure cooker on the company’s finances before the coronavirus outbreak hits hard in the second quarter.
This, according to Vetiva Capital, dragged the company’s performance into a loss, as seen in its 9-month 2020 result. Going into 2021, Vetiva Capital projected that oil recovery at a realized price of $50 per barrel as against $44 per barrel in 2020 couple with relatively higher drilling activities would lift Seplat oil revenue to $587 million from $439 million estimated for 2020.
Meanwhile, in its equity research note, United Capital forecast indicates that Seplat’s earnings per share is expected to come in at $0.32 in 2021.
Financial year 2020 estimate shows that the company’s earnings per share is expected to settled in red at negative $0.09.
This was as a result of expected loss for the year compared with $0.46 in 2019 and $0.26 in 2018. If the projection comes true (as it is more likely), it means United Capital expects Seplat to underperform 2019 figure when the company did $0.46.
Despite the movement in earnings per share deployed in operation, analysts expect the company to maintain stable dividend per ordinary share at $0.10.
However, it appears United Capital is optimistic over Seplat’s stock market performance, setting target price at ₦571.5 per share as against market price of ₦402.3 at reference date.
But guess what? Seplat share price closed at ₦540 on Friday from ₦451 on Monday, gaining N89 on each share in the week amidst market rally.
The development may not be unconnected with improve sentiment in the oil sector as global price of oil has maintained uptrend.
Apart from that, the production volume increase from the last oil cartel meeting means an improved supply from Nigeria’s quota. However, this is coming despite tussle between Seplat and Access Bank Plc, as the Federal High Court has uphold Mareva injunction.
For most of 2020, the indigenous oil exploration compare was faced with uncertainties ushered in by the outbreak of coronavirus and eventual lockdown of the global economy. While the company was raising capacity, demand for oil sloped down significantly. This impacted the company’s earnings following weak global oil prices.
In its projection for 2021, United Capital said reduced margins marred SEPLAT’s result in 2020 due to a fall in oil prices which consequently led to a reduction in gains from hedged products.
Explaining the change in fundamentals, analysts noted that the company’s total revenue was down 10.0% to ₦135.0 billion. On absolute comparison, this mean revenue declined ₦15 billion from ₦150 billion.
However, analysts noted that crude oil sales were up 7.9% in Q3 2020, but revenue from gas were down 10.9% and oil processing revenue fell by 100.0%. According to United Capital analysts, SEPLAT has now stopped processing gas for the NNPC.
It was noted that average hedge price fell to $38.6 as against $64.22 in 9 months of 2019, which translated to a 39.9% drop. However, United Capital stated in the review that the company up its capacity as production increased in 2020.
But the decline in realized revenue affected margin efficiency. Consequently, the company’s operating profit margin came in at -20.4% from 42.6% in the corresponding period in 2019.
“For our outlook on SEPLAT, we are optimistic that increased production levels stemming from demand recovery and uptick in oil prices will bode well for 2021 performance amid removal of OPEC quotas.
“As such, we expect the company to return to profitability in 2021”, United Capital explained. Again, analysts said with decent improvement in the oil market, they expect sentiment for the ticker to improve. Vetiva Capital sees Seplat turning in operating profit of $233 million in the absence of significant impairment losses through 2021.
However, analysts indicated expectation that the company profit after tax would print at $135 million in full year 2021 as against $44 million estimated for 2020. #Analysts Project Earnings Recovery for Seplat as Oil Prices Rise # Fiscal Deficit to Rise over Oil Production Limit as NASS Raised Budget
