Seplat Energy, a prominent company listed on the NGX, stands out for its practice of quarterly dividend payments to shareholders in various currencies, offering investors the option to receive dividends in foreign currencies rather than Naira.
In the 2022 financial year, the company proposed and paid a cash dividend of $0.10 across four quarters, with varying exchange rates.
Continuing this trend into 2023, Seplat paid a total of $0.09 in the first three quarters, adapting to changing exchange rates.
The company has declared US 3 cents per quarter with exchange rates of N465.04, N759.86, and N996.75 to USD1 for Q1, Q2, and Q3, respectively.
The quarterly payment ensures investors receive returns more frequently compared to the less frequent alternatives of annual or semi-annual dividends
For investors seeking income, Seplat offers an attractive opportunity. The company maintains a core dividend policy of 3 cents per share quarterly (12 cents per share annually) and may consider an additional special dividend as part of the full-year 2023 results, as stated by the company.
The stock, accompanied by robust share price growth, proves to be a compelling investment choice.
In 2022, Seplat Energy’s stock outperformed the market, achieving a Year-to-Date return of 69.23%, compared to the NGX All-Share Index return of 19.98%.
In the current year, the stock has recorded a Year-to-Date gain of 110% and, with a current dividend yield of 4%, offers investors a potential total return of 114%.
Approaching the final quarter of the fiscal year, Seplat is set to maintain its dividend distribution pattern. CEO Roger Brown has conveyed confidence in the company’s trajectory, underscoring a commitment to safe operations, revenue assurance, and cost management throughout the remainder of 2023. Brown stated:
- “Our focus for the rest of 2023 is on safe and reliable operations, revenue assurance and cost management, all of which will deliver further strengthening of our cash position. This keeps us on track for an excellent year that will support the increased quarterly dividends we announced in April and allow us to continue our commitment to reward shareholders.”
However, a significant concern lies in the volatility of oil prices, considering that about 88% of Seplat’s total revenue is derived from crude oil sales.
This commodity price risk exposes the company’s financial performance to variations in oil prices, potentially impacting its bottom line and, consequently, its dividend policy.
For instance, the Q3 report highlighted the recovery in crude oil prices, which had trended downwards for most of H1 2023 due to concerns about the impact of global monetary policy normalization on economic activities.
The company’s average realized oil price in Q3 2023 was $90.3/bbl, showing a 19% and 10% increase from Q2 2023 and Q1 2023, respectively.
However, it represents a 21% decrease from $114.68/bbl realized in Q3 2022. Overall YTD, the average realised oil price for Seplat was $82.76, 24% below the $108.25/bbl average realised in 9M 2022.
The volatility in oil prices, coupled with lower prices, has not only impacted profitability but could have resulted in a decline in revenue if not for overlifts; instances where more oil was extracted from a production facility than officially allocated.
In 9M 2023, excluding overlifts, the crude oil revenue stood at $588.5 million, representing a marginal 1% decrease compared to the adjusted revenue in 9M-2022, which was $595.2 million (adjusted for underlift in the period).
The impact of lower oil prices is evident in the slight dip in crude oil revenue, but the situation is compounded by FX losses resulting from Naira devaluation and elevated G&A expenses.
These challenges collectively pose potential hurdles to sustained revenue growth, profitability and, consequently, the dividend policy.
The outcome of these factors was reflected in the profit attributable to equity holders of the parent company, amounting to $40.5 million in the first nine months of 2023.
This resulted in basic earnings per share of $0.07 for the period, a notable decrease from the corresponding period in 2022 when basic earnings per share stood at $0.13
However, it is reassuring to note that the company remains committed to minimizing G&A expenses, has established cost champions to identify cost pressure points, and is implementing measures to control expenditure in those areas.
Moreover, as part of its strategic approach to addressing challenges posed by oil price weakness and volatility, the company has implemented a hedging policy aimed at ensuring a reliable level of cash flow assurance and fostering a sense of optimism.
According to Seplat’s Q3 report, the company successfully hedged a total volume of 6.0 million barrels of oil in 2023.
In the fourth quarter of the same year, Seplat actively engaged in hedging activities, securing 1.5 million barrels of dated Brent deferred put options at $55 per barrel, incurring a cost of $0.73 per barrel.
Looking ahead to the first quarter of 2024, Seplat continues its hedging strategy by securing an additional 1.5 million barrels of dated Brent deferred put options at $65 per barrel, with a cost of $1.08 per barrel.
The company’s ability to manage costs, improve profitability, and sustain its positive momentum will be key to its continued future dividend performance.
The company’s anticipation of generating positive free cash flow in the final quarter of 2023, further supporting its capacity to fund the MPNU transaction and continue rewarding shareholders, is positive and reassuring.
