Seplat Plc Q1 2021 Results: Top and Bottom line Growth Amid Rising Costs

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Wednesday, May 05, 202111:00AM / by Tosin Ige, Proshare Research / Header Image Credit: Seplat Petroleum Development Company Plc

 

Rising from COVID-19-induced problems mirrored in the fall in the company's revenue by -3.57% in 2020, Seplat Petroleum Development Company Plc's (SPDC's) first quarter (Q1) 2021 unaudited results saw operating cash flow before movements in working capital rise marginally by +3.82% year-on-year (Y-o-Y) to $84.1 million in Q1 2021, up from $81.0 million in Q1 2020. However, the oil driller's net operating cash flows after movements in working capital fell by -91.78% Y-o-Y to $5.3 million in Q1 2021 from $64.5 million in Q1 2020.

 

Given a +20.5% increase in average Brent prices per barrel from $50.9 in Q1 2020 to $61.3 in Q1 2021, SPDC total revenue climbed by +36.60% Y-o-Y from N42.41bn in Q1 2020 to N57.93bn in Q1 2021.

 

Measured in dollar terms, total revenue for Q1 2021 rose by a lower rate of +16.80% Y-o-Y from US$130.5m in Q1 2020 to US$152.4m in Q1 2021.

 

Key Highlights

  • The company's total revenue increased by +36.60% Y-o-Y from N42.41bn in Q1 2020 to N57.93bn in Q1 2021.
  • Cost of sales (CoS) also grew by +19.65% Y-on-Y from N31.65bn in Q1 2020 to N37.87bn in Q1 2021.
  • Gross profit increased by +86.47% Y-o-Y to N20.06bn in Q1 2021 from N10.76bn in Q1 2020 motivated by the increase in revenue and cost.
  • Finance income fell by -99.14% Y-o-Y from N347m in Q1 2020 to N3m in Q1 2021 and finance cost also fell by -7.95% Y-o-Y from N6.94bn in Q1 2020 to N6.39bn in Q1 2021.
  • The operating profit increased significantly by +167.40% Y-o-Y from a loss in Q1 2020 to N16.88bn in Q1 2021.
  • Profit before tax increased by +134.22% Y-o-Y to N10.65bn in Q1 2021 from a loss of N31.11bn in Q1 2020.  
  • Income tax expense fell by -65.93% Y-o-Y from N3.52bn in Q1 2020 to N1.20bn in Q1 2021.
  • Profit after tax increased by +127.29% Y-o-Y to N9.45bn in Q1 2021 from a loss of N34.63bn in Q1 2020.
  • The total assets grew by +18.45% Y-o-Y from its N1,109.04bn in Q1 2020 to N1,313.87bn in Q1 2021.
  • Earnings per share also surge by +138.69% Y-o-Y in Q1 2021 to N23.29.


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Share Price & Volume Movement- Of Dips and Ducks

Seplat's share price ended the year 2020 and began the year 2021 on a stable note indicating that investors were neutral about the future earnings of the company despite the recovery in oil prices over the period which saw price seesaw between N400 in October 2020 and N402 on January 4th, 2021 with a peak of N420 from October 16th, 2020 to 13th November 2020. The price movement saw a sharp increase on January 15th, 2021 but was accompanied by a decline towards the end of the month. However, prices rebounded in February 2021.

 

Concerning volume, Seplat began Q4 2020 with over 200,000 shares traded, the highest between the two quarters. However, traded volumes slumped towards the end of the month. Specifically, between Q4 2020 and Q1 2021, Seplat's traded share volume fluctuated along with a bearish (declining) trend in October and December 2020, as well as January, February, March, and April 2021. Bullish (or buy) orders have been muted at the beginning of the year as investor sentiments have been fairly subdued in Q1 (see chart 1 below).


 

Chart 1: Seplat Share Price Movement Vs Volume of Shares

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*share price and volume as of 30 April 2021

Source: NSE, Proshare Research



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Top and Bottom line Hops

The growth in gross earnings was driven by an increase in crude oil and gas sales. Revenue from crude oil sales in Q1 rose by +35.11% Y-o-Y to N47.15 bn in 2020 from N34.90 bn in the corresponding period of 2020. In dollar terms, crude oil revenue skipped by +15.5% in Q1 2021 to $124.1 million from $107.4 million in Q1 2020 reflecting largely the increase in international oil prices. SPDC placed the average oil price realized in Q1 2021 at $60.8/bbl compared with $49.9/bbl in Q1 2020.

 

The company's gas revenue in Q1 2021 grew by +43.55% Y-o-Y to N10.78 bn up from N7.51 bn in Q1 2020. Similarly, in US dollar terms, gas revenue rose by +22.8% to $28.4 million in Q1 2021 from $23.1 million in Q1 2020 arising from higher gas sales volumes of 10.3 billion cubic feet compared with 7.9 billion cubic feet recorded in Q1 2020 (despite the lower average gas price at $2.76/Mscf in Q1 2021 compared with $2.89/Mscf in Q1 2020).  The company's Q1 report indicated that high gas sales were achieved from supply by new gas wells brought into operation.

 

Overall, the company's Q1 2021 revenue reflects the company's growth in oil and gas sales. Revenue rose to a value above the pre-pandemic level, the highest for the last six years (see chart 2 below).  

 

Chart 2: Seplat Total Revenue Q1 2015 - Q1 2021 (N'bn)

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Source: Seplat Financial Statement, Proshare Research

 

The company profit before tax recovered from a loss before tax in Q1 2020 leading to an increase of +134.22% Y-o-Y to N10.65bn in Q1 2021 (see chart 3 below), aside from the increase in sales revenue, the rise in profit before tax was also driven majorly by a -99.43% Y-o-Y decline in impairment loss on financial assets and a -128.54% Y-o-Y drop in fair value gain.

 

Translating in US dollar terms, profit before tax also increased by +129.26% Y-o-Y from $95.7 m loss in Q1 2020 to a profit of $28 m in Q1 2021.

 

Chart 3: Seplat Profit Before Tax Q1 2015 - Q1 2021 (N'bn)

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Source: Seplat Financial Statement, Proshare Research

 


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Working Numbers-The State of the Play


Current Ratio

Seplat's current ratio for Q1 2021 stood at 1.43, the lowest in the last four years. The oil firm showed a -18.29% Y-0-Y decline in its current ratio which slipped from 1.75 recorded in the corresponding period of 2020. However, the 1.43 value showed that the company had a fairly reasonably working capital position, however short of the 2.72 in Q1 2015 and 2.66 in Q1 2018 (see chart 4 below).

 

Chart 4: Seplat Current Ratio Q1 2015 - Q1 2021

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Source: Seplat Financial Statement, Proshare Research

 


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Liquidity Ratio

The indigenous oil major's liquidity ratio for Q1 2021 stood at 6.93% down from 11.24% in Q1 2020. The company's current asset value is the lowest it has recorded since 2015, meaning that the company has more recently struggled with its liquidity (see chart 5 below)

 

Chart 5: Seplat Liquidity Ratio Q1 2015 - Q1 2021 (%)

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Source: Seplat Financial Statement, Proshare Research

 

Acid-Test Ratio

The company's Acid test ratio, for Q1 2021 was 1.25 compared to 1.59 in Q1 2020. A breakdown of the acid test ratio components showed that the company had recorded a notable increase in its inventory. Analysts, therefore, note that a reduction in inventory (a rise in sales) would help the company achieve improved liquidity and ease working capital pressure (see chart 6 below).

 

Chart 6: Seplat Acid-Test Ratio Q1 2015 - Q1 2021

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Source: Seplat Financial Statement, Proshare Research

 

Leverage Ratio

The company's leverage ratio for Q1 2021 stood at 41.13% slightly lower than the previous years 46.70% in Q1 2020. The Q1 2021 dip in leverage was driven by a -7.93% Y-o-Y fall in total debt from Q1 2020 to Q1 2021. Analysts have observed that this was a good start to the year and investors will probably be more optimistic about the companies leverage and ability to sustain operations with lower-cost financing options, thereby de-risking its business (see chart 7 below).

 

Chart 7: Seplat Leverage Ratio Q1 2015 - Q1 2021 (%)

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Source: Seplat Financial Statement, Proshare Research


 

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Days Ahead

The company is firmly optimistic about its business outlook in2021. Seplat's Chief Executive Officer (CEO), R. T. Brown, recently noted that:


"For 2021 we expect to produce an average of 48,000 - 55,000 boepd, taking into account the impact of OPEC+ quotas. We continue to hedge against oil price volatility and expect a higher proportion of revenues to come from long-term gas contracts at stable prices.

 

We have significant cash resources and will continue to manage our finances prudently in 2021, expecting to invest $150 million of capital expenditure across the full year, with nearly $33 million already invested. We remain confident that our ongoing cost-cutting initiatives and prudent management of cash will enable further reductions in debt, whilst supporting dividend payments and investment for growth."

 

Given the rebalancing occurring in the oil market and the sustained rise in demand, higher oil prices, and the pivot towards gas, has nudged the company to prepare for a reshaped energy future. This would probably match the company with its proposed name change to "Seplat Energy Plc". The new tack of the company may outweigh investor's fears of declining corporate cash flows, liquidity squeeze, and legal restrictions placed on the oil driller's cash balances.




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