SEPLAT Tops Analysts Best Buy after 72% Gain as Oil Rally

SEPLAT Tops Analysts Best Buy after 72% Gain as Oil Rally

SEPLAT Petroleum Development Company’s stock makes a fresh foray into equity analysts’ best buy lists for the week after share price gained 72% year to date amidst oil market rally.

Rated buy, investment analysts said the company’s stock is unjustifiably trading at discount. In a note, investment analysts at Chapel Hill Denham said they believe that the stock appears compelling from a price to book value perspective.

In fact, analyst said since the recent episodes of an oil price rally, SEPLAT’s share price has risen by 72% year to date. Nonetheless, the share is still trading at 0.5x price to book value relative to the peer average of 0.92x.

“For us, such a discount is unjustifiable”, analysts at Chapel Hill Denham said in an equity note on Tuesday.

Just last week, the Nigerian Exchange (NGX) All-Share Index (ASI) sustained its run of positive outturn for a second straight week , gained +111 basis point above previous week – a development that Chapel Hill Denham’s analyst said is unsurprising.

For one, the analysts said they imagine that the buying interest was due to the bargain-hunting opportunities, following the significant sell-off witnessed, especially in May.

SEPLAT Tops Analysts Best Buy after 72% Gain as Oil Rally
SEPLAT

Furthermore, the race to meet the 2020 dividend qualification date also comes to mind as another key driver of the positive outturn. Thus, the stock market year to date (YTD) loss moderated significantly to 2.77%, while the market capitalisation rose to N20.41 trillion.

“Based on our attribution analysis, we noted that most of last week’s gain emanated from investors’ interest across DANGCEM which gained 4.55% last week above previous week, STANBIC surged 6.06% and OKOMUOIL share price increased 20.73% – all of which were enough to mask the continued apprehension towards 1.39% drop in MTNN shares.

For DANGCEM, investment analysts said they believe the potential return of the share buyback programme is essentially driving another round of speculative gyration on the share price.

“We recall that the company bought back 0.24% of its outstanding shares in December 2020, instead of up to 10% that was initially announced, blaming an unsupportive environment”, analysts said.

Meanwhile, management acknowledged, during its engagement with analysts that it is seeking fresh regulatory and shareholders’ approval for another round of share buyback.

“That said, while the equity market showed a lot of optimism last week, we see strong arguments for this fortune to reverse quickly.

“For one, yield attractiveness in the fixed income market will continue to hinder progress in the equities market, in our view.

“Beyond that, we think the still challenged FX market will continue to keep foreign investors apprehensive towards naira equities, as the absence of pricing flexibility by the CBN continues”, Chapel Hill Denham said.

Nonetheless, the investment firm guides that Nigeria’s valuation remains attractive relative to peer countries both on forward P/E and dividend yield perspective.  “For us, this development could trigger an upward repricing of equity instruments in the medium term”.

Recommendations

Analysts said in the Banking sector, they like Access Bank, Fidelity Bank, Zenith Bank, Guaranty Trust Bank, Stanbic IBTC Holding, United Bank for Africa, and FBNH.

In the consumer goods sector, analysts say they like Dangote Sugar Refinery, Flour Mills, Nigerian Breweries, IntBrew, Guinness, UAC of Nigeria, Unilever, and FCWamco.

“We also have buy ratings on Lafarge in the cement sector, Custodian & Allied in the insurance sector, and Airtel Africa in the telecommunication sector”.

For this week, Chapel Hill Denham’s best buy is SEPLAT (BUY: N722.98), as analysts believe the stock appears compelling from a price to book value perspective.

In fact, the investment firm said since the recent episodes of an oil price rally, SEPLAT’s share price has risen by 72% year to date.

SEPLAT Tops Analysts Best Buy after 72% Gain as Oil Rally

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