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Thanks for highlighting. Good to see the level on the rise since.
I think most of us here "know" that this share is going to £30 at the very minimum. For christsake the USD market cap is still below the peak of end November 2022. Indeed we have a 20% rise from here to reach the all time USD market cap peak of end July 2018. The market can be so incredibly and stubbornly dumb on occasions, and this is one of those.
Https://www.cftc.gov/MarketReports/financialfcmdata/index.htm
Latest data for March released from CFTC. Cunningham Commodities "customer assets in seg" did not increase month on month unfortunately. But VIX is also down, so margin levels may also be lower.
Https://punchng.com/shell-will-complete-2-4bn-nigeria-assets-sale-june-fg/
CEO of NUPRC has said, quite explicitly, that they target the divestment of Shell's assets to be completed by June.
I believe the same "due diligence dialogue", which is intended to tie up loose ends regarding "environmental and end-of-life liabilities" is also in process regarding ENI/Oando and MPNU/Seplat.
So we might be looking at a June sign-off date, which is not so far away.
These results were good. Production was solid, at the higher end of guidance, with the resumed Trans Nigeria Pipeline allowing a restart of wells at OML53 auguring well for the rest of the year. Cost of production was slightly up from last year at $9.6/boe, so, fundamentally, the business remains extremely profitable.
In addition, several positive indicators:
Firstly re ANOH, the OB3 pipeline is still anticipated for completion by end Q2, which is the first time I haven’t seen slippage in this schedule, which suggests reasonable hope that ANOH can commence production by end Q3, or at the very worst by end of the year! To give some perspective, this was originally slated for operation in 2022 and has been delayed multiple times – to see operational start around the corner is a great thing.
Secondly, fiscal incentives have been raised, as well as changes to a law concerning contracting process, and the regulator has raised domestic gas prices, which all point to the positive regulatory/governance backdrop which is supportive of investment and expansion of this industry.
Thirdly, MPNU deal close is not far off.
As Access Capital points out, MPNU will approximately halve current ratings, i.e. double profit and cash flow. Their forecast aligns with mine, which is approximately $250m in free cash flow once ANOH is contributing, doubling once MPNU is consolidated = $500m Free Cash Flow. Market cap is $1,165m.
I expect financing cost of MPNU to be around 12% but the total cost after adjustments to be around $800m (conservative guess), much lower than the $1,200m price tag, so financing expense will be around $100m annually. Therefore genuine FCF of the consolidated group will be $350m in year one = 30% FCF Yield.
At that rate of cash generation, the MPNU loan will be paid back in about two years, during which time MPNU production will have increased circa +20-30% on fresh capex. That means two years after MPNU consolidation FCF will be $600m+. Consider that in the context of today’s market cap of $1,165m.
If you haven't seen, Capital Access have published a research piece on the results. I haven't had a chance to look at them in detail yet myself, but seems that all is in good order.
https://www.capitalaccessgroup.co.uk/research-portal#/portal/capital-access-group/research/23_2024042902355766129
https://www.capitalaccessgroup.co.uk/research-portal#/portal/capital-access-group/
"Seplat delivered an encouraging operating performance in 1Q24 including
production of 49.3kboed, towards the upper end of guidance (44-52kboed). All
current guidance was maintained but good progress on the ANOH export
infrastructure and an earlier than expected resumption of exports through
Zone 6 of the Trans Niger Pipeline improve confidence that guidance will be at
least met. Financial performance for the quarter was skewed by a substantial
underlift, FX effects, and a high deferred tax charge, much of which should
rebalance in subsequent quarters; the dividend was maintained at USc 3. We
have revised our forecasts to reflect guidance and despite the strong
performance of the share price, the rating remains attractive, with debt adjusted
cash flow of under 4x for FY24 and falling rapidly. Completion of the MPNU
acquisition would approximately halve current ratings, we estimate."
Please, no. The vast majority, around 80% or is it 90%, of SEPL's revenues are from oil sales which are exported. The remainder is gas which is USD priced, paid in NGN. The naira moves are not very important to SEPL, in either direction. Please don't make statements unless you are quite certain of the mechanics. The point of this board is to share useful and well-researched information, not confuse folks.
OML40: https://www.seplatenergy.com/our-company/our-operations/upstream/oml-40/
Seplat has invested in a professional IR executive, James Thomson, who has already improved communication in terms of written statements with more granular explanation, more video interviews, better format of quarterly results call, and more active direct communication with shareholders and potential shareholders. It takes time to build a following after years of underinvestment in IR.
Most importantly, a clear intention to drive the dividend has been communicated, which comes on the back of several years of dividend consistency - this is very important in raising interest in the stock.
An NYSE listing would not add any value at all, IMO.
More importantly, every step up in the dividend attracts attention and underpins step ups in the share price.
MPNU will be transformational and raise the share price and daily traded liquidity - increased traded liquidity will allow institutions to enter the name, which is key. In short, when daily traded liquidity moves towards $1m/day, there will be a natural upwards re-rate as institutions come in.
In my view, we have a pretty clear roadmap here, and it's all very positive
In my view, Monday will not herald much of note, other than solid operating performance, although perhaps the board raises the quarterly dividend, which I hope they do. They can move to paying the 15 cents over four quarters, which will be 3.75 cents/quarter, and then raise the dividend significantly from there in Q1 2025, as they have indicated they will do, when either ANOH is operational or MPNU is consummated. Everything we have been told to date suggests, in translation, that the dividend should increase by at least 20 cents (my estimate) when ANOH and MPNU are put to bed. That will make 35 cents of annual dividend. That is 25 pence of dividends annually in the pocket, with plenty of free cash generation left over for expansion projects in gas and recovering production of MPNU.
Happy days Trek, MR Market is finally realising that this is a very attractive income play with step-ups (plural) in income in the near-term, plus various growth avenues once MPNU closes. Frankly, when MPNU is sealed all bets are off regarding where this business could go. We've been invested in this name since 2019/2020 I believe and it's been a long wait but so good to see the stars aligning at last.
I will give this a final go, to finish my sentence! The other related point I was trying to make refers to Alex's nod to the "integrated" E&P aspect, and MPNU's related opportunity in gas to Europe. Seplat's growing midstream business is a long term contract fixed price business, which deserves a higher valuation, and this business will multiply in scale if SEPL can install infrastructure to process and export MPNU's huge gas reserves to Europe, again under long term contract. All of this comes on top of the core oil business's prolific cash generation. When the MPNU deal is cemented, this "hidden" upside comes into play.
Starting a new chat since the other seems to have a bug. Point being many very low multiple E&Ps deserve to trade at a low multiples as they have short reserve life, some
My post was also cut short! Some tech issue/bug. I was just saying that not all multiples are equal and many very low multiple E&Ps deserve to trade at a low multiples as they have short reserve life, some
Thanks Alex, interested in your further thoughts.
You mentioned that SEPL is one of the cheapest valuation integrated player in the world. I agree and would make two specific points that relate:
1. SEPL's valuation multiple is of course very low indeed, but it is even cheaper than it looks because SEPL has a solid life span of reserves (25 years+), whereas most of the other cheap names in the market have much shorter life reserves, say 10-15 years or even
Today is the last chance to get the quarterly and special dividend. Last year the share price took just 8 days to recover the value of the dividend adjustment. Suspect something similar will happen this year too given the stock's positive momentum.
MPNU is producing at circa 70k bopd today, which is quite a bit lower than the 90k+ bopd when the acquisition was announced two years ago, which is a result of natural well decline as MPNU is not drilling new wells. The operation is obviously profitable and cash generative, but margins must be lower than SEPL’s onshore operations as MPNU is offshore and carries higher costs re Exxon parentage. We won’t know the details until the Prospectus is published. However we can safely speculate that cash generation is still significant, more than enough to cover capex to raise production back to previous levels whilst also upstreaming free cash flow to SEPL. As I see it, MPNU will justify another big increase in SEPL’s dividend. I would be surprised if an additional 10 cents of dividend is not possible from MPNU alone.
Do the math on conservative assumptions: 70k bopd @ $80 oil – 20% royalties - $25 opex - $15 capex = $16/bopd – 30% cash taxes = FCF circa $10/boe, or $250m in annual FCF on 70k bopd. An increase in dividend of 10c would cost SEPL around $60m. In my view, this is the least one should expect.
A year or two from now ANOH will be generating around $60m in FCF too, so that’s another 10 cents in dividend on top, taking total dividends to 35 cents or 25p net of withholding tax (16% dividend yield at today’s share price).
This would leave circa $200m/year free cash generation from MPNU alone for servicing and paying down the debt taken to acquire it. SEPL will likely be debt free within five years despite the leap in dividend payments to shareholders. Then there are SEPL’s current operations, which are also generating plenty of cash. Depending on whether additional investment opportunities can be found, SEPL’s current operations excess cash generation might also need to be passed to shareholders, which would present further upside to the dividend beyond the 35 cents. It becomes quite easy to make the case that SEPL should be trading closer to 300p in 1 or 2 years’ time alongside ongoing large dividend stream.
The stock is clearly completely misunderstood by the market. I see “Nigeria risk” being used liberally as a reason why it is trading in deep value territory, but as I’ve pointed out in many posts before, Nigeria risk is objectively lower than UK risk these days in E&P because the government is wholly committed to encouraging more investment in E&P not less. The UK North Sea operators face many more legal, tax and regulatory risks. The commitment of Nigeria to increasing oil production also means an improving security situation as one can’t have the second without the first, not to mention SEPL’s own advantages regarding impenetrable underground pipeline for evacuation and MPNU’s offshore operations which can’t be easily disrupted. Anyone who says the “country risk” is too high does not understand the landscape.
Exactly! The market cap is lagging previous highs, so we must have further to run. The market cap should be higher to reflect all these positives, but still remains lower than it was in 2022. Ridiculous.
The more shares in treasury, the more value is concentrated in what shares are left in issue. They have been buying back shares at heavily discounted price levels, which is only a very good thing for all of us shareholders. Their EPS is enhanced purely by these share buybacks. Considering more than 10% of the shares have been purchased in the past year, the market cap of PLUS is actually still below the high at end 2022 and early 2023. To be precise, the market cap today is £1683m, vs £1730m in Jan 2023 and 1800m in Nov 2022. The share price looks like it is run up a lot, but the market value of PLUS is actually still lower than it was at the end of 2022, which is very odd considering they have created a sizeable and fast growing US business since then, not to mention opened UAE, Japan, etc.
Arbitraging this is difficult unless you have a custodian relationship in both jurisdictions that can handle the share register switch, which is entirely possible but requires the custodian to action. Basically only institutional investors can do this. Once you have the Nigerian stock, you need to sell it and FX the proceeds back to GBP, which shouldn't be an issue now that currency controls have supposedly been lifted. Liquidity in the local share, the small volumes, and sheer admin hassle means few institutional shareholders are likely to bother. Hedge fund types might do it but they have to open local custody in Nigeria first and I'm not sure that is a priority for them or anyone! I do wonder if the investment banks might do it as a prop trade, but it is not really their business. More than anything, it is just a great signal that SEPL is mispriced here in the UK.
I don't think anything can be done without a shareholder vote. I'm going to hunt out the detail from Israeli corporate law, give me a few days...