The stock of Indigenous Nigerian oil and gas firm Seplat Petroleum Development Corporation has risen a whopping 127 percent since Januar7 18, 2016 (see Fig. 1).
Fig 1: Seplat in Powerful Rally (one year chart)
Source: Bloomberg
However is this a good time to buy for those who have been on the sidelines?
Catalyst for rally
- Seplat released a positive trading update on January 25th, 2016, with the following highlights:
- Full year 2015 working interest production of 43,372boepd -ahead of guidance and up +41 % year-on-year.
- Current daily working interest production running at around 55,000 boepd–oil and gas rates both strong.
- Benefit of Oben gas plant expansion being felt with significantly higher gas sales and condensate yield–gas pricing is de-linked to oil price.
- 2015 revenue expected to be US$550million to US$600 million.
- Liquidity remains strong with net debt as at 31 December 2015 US$537 million (including cash balances of US$326million).
“In what was a very challenging year for the industry, Seplat still delivered best-in-class production growth in 2015 with liquids output up 20 percent and gas output up 119 percent year-on-year, corresponding to a 41 percent increase overall,” said Austin Avuru, Seplat’s Chief Executive Officer in the update.
Thoughts
The 2015 results are hugely positive for Seplat in view of the tough macro environment of last year and collapse in oil prices that has seen the bankruptcy of a number of oil E&P companies’ globally.
Looking at Seplats stock we can see that it has largely tracked oil prices over the past year (see Fig 2).
Technical indicators show Seplat has moved above its 50 day moving average, while RSI (14 day) is close to 70 which is bullish.
Seplat is also above the upper Bollinger bands, while money flow index is showing overbought (meaning this stock is being bid actively).
Fig 2: Seplat vs. Oil
Source: Bloomberg
The fundamental picture for Seplat is strong as well as the technical backdrop of the chart.
Seplat is still a long ways away from its IPO pricing close of N735 per share.
The next major resistance is the round number N400 per share, which the stock last saw in May 2015 when Brent crude prices were trading at double today’s levels near $62 per share.
Verdict
Seplat has rallied hard from the lows reached just six weeks ago.
The technical and fundamental story is bullish on the stock.
Further more if you believe oil prices have bottomed then this can only go up from here.
I would begin to accumulate shares of Seplat at these levels (up to N500/ share) as it is showing tremendous strength.
P.S: The writer of the article has negligible holdings in Seplat as of this time.
