Nairametrics
  • Home
  • Exclusives
    • Financial Analysis
    • Corporate Stories
    • Interviews
    • Investigations
    • Metrics
  • Markets
    • Cryptos
    • Commodities
    • Equities
      • Dividends
      • Stock Market
    • Fixed Income
    • Market Views
    • Securities
  • Industries
    • Company News
    • Consumer Goods
    • Content Partners
    • Corporate deals
    • Corporate Press Releases
    • Energy
    • Entertainment
    • Financial Services
    • Hospitality & Travel
    • Manufacturing
    • Real Estate and Construction
    • Tech News
  • Economy
    • Get Data
    • Macro-Economic News
    • Research Analysis
  • Business News
  • Financial Literacy
    • Career tips
    • Personal Finance
  • Lifestyle
    • Billionaire Watch
    • Profiles
  • Opinions
    • Blurb
    • Op-Eds
No Result
View All Result
  • Home
  • Exclusives
    • Financial Analysis
    • Corporate Stories
    • Interviews
    • Investigations
    • Metrics
  • Markets
    • Cryptos
    • Commodities
    • Equities
      • Dividends
      • Stock Market
    • Fixed Income
    • Market Views
    • Securities
  • Industries
    • Company News
    • Consumer Goods
    • Content Partners
    • Corporate deals
    • Corporate Press Releases
    • Energy
    • Entertainment
    • Financial Services
    • Hospitality & Travel
    • Manufacturing
    • Real Estate and Construction
    • Tech News
  • Economy
    • Get Data
    • Macro-Economic News
    • Research Analysis
  • Business News
  • Financial Literacy
    • Career tips
    • Personal Finance
  • Lifestyle
    • Billionaire Watch
    • Profiles
  • Opinions
    • Blurb
    • Op-Eds
No Result
View All Result
Nairametrics
No Result
View All Result
Home Opinions Blurb

Earnings quality undermined by missed output, oil shocks

Meristem by Meristem
November 13, 2019
in Blurb, Company News, Company Results
Seplat commences $700 million gas plant construction, Vitol Energy transfers 4.63 million shares to Seplat , Seplat, Three more companies announce their closed period ahead of Q3 financial result , Seplat’s 9 months revenue dips by 11.5% according to latest earnings report, Earnings quality undermined by missed output, oil shocks, Firm issues warning over Seplat Petroleum’s acquisition of Eland Oil & Gas 
Share on FacebookShare on TwitterShare on Linkedin

Crude and gas production disappoint

For the third time this year, SEPLAT has missed its production and revenue targets. 9M:2019 topline was down by 12.57% Y-o-Y to NGN151.88 billion (9M:2018: NGN173.71 billion). Standalone Q3:2019 revenue printed at NGN42.91 billion, weaker by 37.74%, compared to NGN68.92bn at this time last year. At the start of the year, SEPLAT had put out guidance of 24kbpd – 27kbpd for oil and 146MMscfd – 164MMscfd for gas, but has only achieved 23,658bpd for oil and condensates (vs. 25,286bpd in H1:2018) and 136MMscfd (vs. 155MMscfd last year) for gas, YtD.

The company is facing operational challenges with its efforts to mobilize rigs to site. On the back of an impending global glut in 2020 and weak demand growth, oil and gas prices have also largely underperformed; during the period, average oil price was down to USD64.22pb (9M2018: USD71.14pb) while gas was also discounted to USD2.80/Mscf (9M2018: USD3.06/Mscf). Consequently, the Crude Oil segment floundered – revenue from the segment is down 26.53% to NGN99.08 billion, while gas sales similarly tumbled; down by 16.97% to NGN32.23 billion.

With NGN20.35 billion in gas tolling fees recognized during the period, 9M topline was handed a significant boost, and would otherwise have printed at NGN131.34 billion, a Y-o-Y decline of 24.39%. It is now likely that the company’s initial work programme for 2019 will not be delivered. We now envisage that SEPLAT will exit 2019 at average production levels of 23,000bopd for oil and 130.5MMscfd for gas, a steep discount to our initial expectations of 34,000bopd for oil and 158MMscfd for gas. However, we also expect the final tranche of USD101mn (c. USD30.68 billion) in gas tolling fees to come in by year-end and provide a buffer for 2019FY revenue to rise by 9.88% to NGN242.92 billion (previous estimate was NGN221.08 billion).

Impairment losses knock operating margins

Direct costs surged to 51.38% between Q1:2019 and Q2:2019 (after adjusting for the impact of gas tolling fees). In Q3, Cost to Sales (CtS) trended substantially higher to 58.77%, settling gross margin at 41.23% (Q3:2018: 58.34%). In absolute terms, direct costs were lower (NGN25.22bn vs. NGN28.71) – evidence that the lower revenue base in the period was indeed a setback, otherwise, since 2018, SEPLAT has posted sub-50% CtS.

[READ MORE: Oil exploration breakthrough in Gongola opens up new frontiers]

Although Q3:2019 operating expenses shrunk by 19.98% to NGN4.05 billion, on a year to date basis, operating expenses are up by 46.68% (+NGN8.77 billion), pressured largely by a NGN12.32 billion write off on receivables owed SEPLAT by NPDC, which the company booked in Q2. There was also a 37.27% reduction in finance costs (NGN6.62 billion) as a result of a payoff on the 2022 Revolving Credit Facility which was concluded earlier in 2019. While Pre-tax profit was only NGN56.71 billion (-12.81% y-o-y), after-tax profit printed at NGN56.65 billion, implying an effective tax rate of 1.84%, due to deferred tax assets.

Eland acquisition improves crude production vista

In October, SEPLAT announced that it had concluded plans to acquire an indigenous London Stock Exchange-listed upstream company, Eland Plc. While the acquisition (with a transaction size of £382 million; NGN178.56 billion) is a sharp departure from the company’s organic growth strategy, we believe it has the capacity to buffer Working Interest 2P (Proven + Probable) reserves to 267.69MMbbls (+18.08%). Similarly, based on fundamentals, we believe that this pricing is justified.

Eland’s oil-producing assets currently have a Reserve Life Index of 12.15x.

Outlook and recommendation

SEPLAT’s net income is now expected to print higher at NGN62.78 billion (vs. NGN50.14 billion previously). We now expect 2019FY EPS at NGN110.43. Using adjusted industry EV/EBITDA of 3.84x, 2019FY target price is NGN602.22 (vs. 585.65 previously), which implies a HOLD.  

Related

Tags: On the MoneyseplatSEPLAT 9M 2019 results

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Hot forex
Cornerstone
Mega Millions
Polaris Bank
Eco Bank
Access Bank
Bankers Committee
First bank


FCMB
Ikeja Electrics




    Business News | Stock Market | Money Market | Cryptos | Financial Literacy | SME |

    Recent News

    • Asia’s richest billionaire, Gautam Adani pledges $8 billion to social causes to mark his 60th birthday
    • Altcoins gain 90% in the last 7 days
    • US Equities: Weekly Round up

    Follow us on social media:

    Recent News

    Gautam Adani, owner of India’s biggest port operator, loses $12.4 billion in a day

    Asia’s richest billionaire, Gautam Adani pledges $8 billion to social causes to mark his 60th birthday

    June 26, 2022
    Here are the best strategies for cryptocurrency trading that you should know

    Altcoins gain 90% in the last 7 days

    June 26, 2022
    • ABOUT US
    • CONTACT US
    • PRODUCTS
    • ANDROID APP
    • iOS APP
    • DISCLAIMER
    • CAREERS
    • PRIVACY POLICY

    © 2022 Nairametrics

    No Result
    View All Result
    • Home
    • Exclusives
      • Financial Analysis
      • Corporate Stories
      • Interviews
      • Investigations
      • Metrics
    • Markets
      • Cryptos
      • Commodities
      • Equities
        • Dividends
        • Stock Market
      • Fixed Income
      • Market Views
      • Securities
    • Industries
      • Company News
      • Consumer Goods
      • Content Partners
      • Corporate deals
      • Corporate Press Releases
      • Energy
      • Entertainment
      • Financial Services
      • Hospitality & Travel
      • Manufacturing
      • Real Estate and Construction
      • Tech News
    • Economy
      • Get Data
      • Macro-Economic News
      • Research Analysis
    • Business News
    • Financial Literacy
      • Career tips
      • Personal Finance
    • Lifestyle
      • Billionaire Watch
      • Profiles
    • Opinions
      • Blurb
      • Op-Eds

    © 2022 Nairametrics

    Social Media Auto Publish Powered By : XYZScripts.com