Seplat Energy PLC

Seplat Energy PLC (LON: SEPL) is an indigenous energy entity, which is listed on the Main Market of the London Stock Exchange. It also supplies gas to the Nigerian power generation market.  

The interim dividend of US2.5 cents per share will be paid on 9 December 2021. The Ex-Dividend date will be 12 November 2021.

Investment Rationale – SPECULATIVE BUY at GBX 85.00

• New Vision: The change of Company's name to Seplat Energy in May 2021 reflects the Company's evolving strategy.
• Outlook: For FY21, production guidance has been set at 48-50 kboepd, while the capital expenditure is expected to be US$167 million. Moreover, the ANOH projects remained on track to produce first gas for H1 FY22, while the project is fully funded following the successful debt issue of US$260 million.
• Dividend Distribution: For the Q2 FY21, the Company declared a dividend of US2.5 cents per share, reflecting a solid cash position and confidence in the outlook. On a forward 12-month basis, SEPL’s dividend yield is significantly higher than the Energy sector’s median.
• Technical Indicator: From a technical standpoint, 14-day RSI (~34.62) indicating an oversold scenario, while the stock has gone significantly below the lower Bollinger Band.

Key Risks

• Demand Uncertainty: As the global demand outlook for energy is unstable due to the Covid-19 mayhem, while there are significant operational challenges. The short-term outlook for the Company looks skeptical.
• Inflation Woes: Higher input costs due to supply chain disruption and labour absenteeism can also hamper the profitability margins.

Financial Highlights (for the nine months ended 30 September 2021, as on 28 October 2021)

 (Source: Company Website)

• Operational Highlights: The YTD working-interest production declined 6.7% year-on-year to 47,280 boepd. However, the gas production jumped 13% year-on-year to 113 MMscfd (Million standard cubic feet per day). The Company also completed two gas wells and three oil wells in 9M FY21.
• Financial Highlights: During 9M FY21, revenue, gross profit, and profit before tax increased by 18.7%, 61.7%, and 174.9%, respectively.

One Year Share Price Chart

(Data Source: REFINITIV, Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative) 

 Conclusion 

Seplat Energy witnessed a strong production recovery and remained on track to meet its full-year guidance. The Group has turned profitable with net profit of US$35.0 million in 9M FY21 against the net loss of US$96.3 million in 9M FY20, and the Company has decent liquidity to pursue its growth prospects. It has also hedged well against the oil price volatility and expects a stable performance in FY21. The stock made a 52-week High and Low of GBX 110.58 and GBX 54.77, respectively.

Based on the solid production, revenue increase, production guidance, decent dividends, and support from the valuation conducted above, we have given a “SPECULATIVE BUY” recommendation on Seplat Energy PLC at the closing price of GBX 85.00 (as on 29 October 2021), with lower double-digit upside potential based on 7.03x Price/NTM Earnings (approx.) on FY21E Earnings Per Share (approx.).

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peers/ Industry information have been taken from Refinitiv.

*Dividend Yield may vary as per the stock price movement.

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