Analysts Sentiment Suggest Resurgence For SEPLAT

Indigenous Oil and Gas firm SEPLAT seems to be firing on all cylinders as it narrowed losses in the second quarter, forcing analysts to review upwards their expectation of the company going forward.

SEPLAT topped the gainers table Tuesday August 14 gaining N9.9 to shore at N480 from N470.1, which is a possible reflection of the company’s encouraging half year result ending June. Revenues spiked by N9 billion to N40 billion, a 29 per cent improvement. This is as gross profit added a billion to push it up to N16 billion from N15 billion.

The company was able to achieve a positive operating profit since the decline precipitated by the oil price slump of two years ago by raising the number to N2billion from a net loss of N10 billion. Improving operating profit helped buoy bottom line, reducing it to N8 billion from N13 billion, which in turn helped raise margins from negative 42 per cent to negative 20 per cent.

Pivotal to the improved results, according to Austin Avuru, SEPLAT’s CEO, is the coming back to life of Forcados and aggressive cost management.

“Since the resumption of exports via the Forcados terminal our production has recovered strongly providing us with sufficient confidence to reinstate guidance, which we expect to be in the region of 43,000 to 50,000 boepd net to Seplat in the second half of the year.  After 18 difficult months, the Company is now well-placed to secure a long-term return to profitability and growth.  We have continued to cut costs, strengthen the balance sheet and establish alternative export routes to insure us against future disruption at Forcados.  I believe that we are now a fitter, stronger Company than at any time in our history and look to the future with renewed optimism. If the current operating environment continues, we expect to see a significant improvement in our performance.”

The company sees better performance, going forward especially with the lifting of the Forcados force majeure and also the Upgrades and repairs now completed as planned on two jetties at the Warri refinery. “The upgraded jetties will enable sustained exports of 30,000 bpd gross if required in the future”, the company said in a statement announcing the half year results.

The company also sees upside from “the completion of the 160,000 bpd Amukpe to Escravos pipeline prioritised by the Nigerian government and anticipated to be fully operational in Q1 2018. It also looks to consolidate on its refocusing bid on domestic gas supply, which added US$54 million in H1 (41% of total H1 revenues and up 15% year-on-year).

Analysts seem to agree that the company is set for a rebound as they have forecast that it would outperform the market. As of Aug 11, 2017, the consensus forecast amongst 7 polled investment analysts covering Seplat Petroleum Development Company PLC advises that the company will outperform the market. This has been the consensus forecast since the sentiment of investment analysts improved on Jun 29, 2017. The previous consensus forecast advised investors to hold their position in Seplat Petroleum Development Company PLC.

But the stock underperformed the market in the last six months returning 20 percent to investors compared to the 50 percent returned by the market. But it was due mainly to the company’s prior performance in the first quarter.

Revenues where almost halved in that quarter to $47.3 million  from $83.42 million from itches in the companies supply jetties in Warri, a situation the company says is but temporary as repair works are under way. Once this is complete, management is confident it would give revenues 30,000 barrels per day boost. In addition, the completion of the Amukpe/Escravos pipeline is expected to significantly bolster export sales.

Meanwhile, thinning revenue gave hard knocks to bottom line, leading to $19.14 million losses even if it is less than the $22.5 million loss of the equivalent quarter. But the drop in operating losses in the period indicates a better control of variable costs, a 73 percent improvement to $1.4 million from $4.95 million. In this regard, the company managed to put a leach around administrative expenses relative to the equivalent quarter. The same goes for forex losses and finance costs which receded 29 and 24 percent respectively. Not even a 578 percent fair value loss from hedging gone awry eroded operating profits.

Although the company managed to deliver a higher gross margin from a tempered cost of sales, it suffered bruises from heightened marginal pre-tax and marginal net losses. Gross profit margin was up to 40.4 percent from 35.2 percent and marginal pre-tax losses was 38.73 percent compared to 17.97 percent while marginal net loss was 40.5 percent compared to 27 percent lost in the equivalent period in 2016.



Source : Independent

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