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SEPLAT Reports Q1 2018 Results – Net Finance Charges Up 47% YoY to US$25m

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Monday, April 30, 2018 /10:24 AM / FBNQuest Research  

Event
: Seplat Petroleum Development Company reports Q1 2018 results
Implications: Slightly positive reaction expected by the market 
Positives: Q4 sales up 282% y/y to US$181m while Q1 PBT of US$59m compares with a loss before tax of -US$18m in Q1 2017
Negatives: Net finance charges up 47% y/y to US$25m 

This morning, Seplat Petroleum Development Company (Seplat) reported Q1 2018 results which, to a large extent, continues to reflect positives from undisrupted exports via the TransForcados System (TFS). This is now the third consecutive quarter that the firm is posting profits. 

Seplat’s sales came in at US$1
81m, up 282% y/y, while PBT of US$59m compares with a loss before tax of -US$18m in Q1 2017. Sales growth was boosted by a recovery in oil sales which grew by over 534% y/y to US$141m. Working interest oil production grew by 434% y/y to 27,306bpd while average realised oil prices were also up 31% y/y to US$65.8/barrel. Production uptime was around 82% while average reconciliation losses stood at 7.3% in Q1. 

Gas sales which were up 58% y/y also supported topline growth, to a lesser extent. Gas production grew 66% y/y to 158MMscfd (a record high), benefitting from de-constrained oil production.
Other positives on the P&L include a significant expansion of gross margin to 51.4% and a -17% y/y decline in opex. Seplat posted a PAT of US$21m which compares to a loss after tax of –US$19m in Q1 2017. On a q/q basis, both sales and PBT were up, by 4% q/q and 27% q/q respectively. However, PAT declined -92% q/q driven by tax credits of US$224m in Q4 2017. Seplat proposed an interim dividend of US$0.05/share which implies a dividend yield of c.2%. 

Compared with our
unrevised estimates, while both sales and PBT beat by c.5%, PAT came in 21% behind our US$26m forecast due to a higher-than-expected effective tax rate of 65% compared with our 54% estimate. On an annualised basis, Q1 2018 PBT of US$59m is broadly in line with consensus. However, we expect a slightly positive reaction by the market given the surprise interim dividend. 

Going forward, management
is looking to deliver on its gas ambitions. Final Investment Decision (FID) on the ANOH gas and condensate development within OML 53 is expected to be made in the coming months. The ANOH project underpins the next phase of growth for the gas business. When completed, Seplat will add around 300MMscfd of gas processing capacity. Additionally, exports via the Amukpe-Escravos export route are likely to resume in Q3 2018, significantly de-risking production going forward. 

Management has also stated an intention to reinstate the firm’s drilling programme and pursue inorganic growth ambitions via possible acquisitions.
Management has finally provided production and capex guidance for 2018. According to management statements, full year working interest production range is set at 48-55,000 barrels of oil equivalent per day (boepd), comprising of 24000-29,000bpd liquids and 148-158MMscfd gas. Capex for 2018 is also set at US$100m for optimisation works on both OML 4. 38, 41 and OML 53. 

Year to date, Seplat shares have gained +
22% compared with the ASI’s 8%. We rate the stock Neutral. 

Our estimates are under review.
 

Seplat Q1 2018 results: actual vs. FBNQuest Capital Research estimates (US$ millions)
Proshare Nigeria Pvt. Ltd.
Source: NSE; FBNQuest Capital estimates

 Proshare Nigeria Pvt. Ltd.


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