Member Info for SeaTank8300

The SEPL share price has a very low correlation with Brent, for those interested. I've pointed this out many times previously. In my view, so long as Brent stays >$60-65, by far the primary drivers of this share will be everything else other than Brent.

Management seem pretty confident about the trajectory for profitability. 10% EBITDA margin should be achievable, which combined with the grow in new business supports an interesting earnings uplift over the coming two years

Hi Tharisa. I agree that the dividend commitment is excellent and a much needed show of confidence. This commitment has limited the downside pressure on the share price. I am grateful for that.

The persistent issue however is Karo. Karo is a sword of Damocles because the project is uncertain to be value accretive and undermines the balance sheet, which could become a problem if Chrome pricing corrects. Unfortunately this creates a great deal of uncertainty and risk. The market does not want you to sink such a large amount of capital into Karo with such an uncertain outlook for PGMs.

Is Tharisa able to more clearly justify this project in the context of the plethora of unknowns regarding PGM and Chrome outlook and the balance sheet concerns? Until management can speak to this project with absolute clarity, the share price will remain under pressure. To date it feels like management is irrationally dogmatic in the face of much uncertainty.

Hi Tharisa. I agree that the dividend commitment is excellent and a much needed show of confidence. This commitment has limited the downside pressure on the share price. I am grateful for that.

The persistent issue however is Karo. Karo is a sword of Damocles because the project is uncertain to be value accretive and undermines the balance sheet, which could become a problem if Chrome pricing corrects. Unfortunately this creates a great deal of uncertainty and risk. The market does not want you to sink such a large amount of capital into Karo with such an uncertain outlook for PGMs.

Is Tharisa able to more clearly justify this project in the context of the plethora of unknowns regarding PGM and Chrome outlook and the balance sheet concerns? Until management can speak to this project with absolute clarity, the share price will remain under pressure. To date it feels like management is irrationally dogmatic in the face of much uncertainty.

Hi Tharisa. I agree that the dividend commitment is excellent and a much needed show of confidence. This commitment has limited the downside pressure on the share price. I am grateful for that.

The persistent issue however is Karo. Karo is a sword of Damocles because the project is uncertain to be value accretive and undermines the balance sheet, which could become a problem if Chrome pricing corrects. Unfortunately this creates a great deal of uncertainty and risk. The market does not want you to sink such a large amount of capital into Karo with such an uncertain outlook for PGMs.

Is Tharisa able to more clearly justify this project in the context of the plethora of unknowns regarding PGM and Chrome outlook and the balance sheet concerns? Until management can speak to this project with absolute clarity, the share price will remain under pressure. To date it feels like management is irrationally dogmatic in the face of much uncertainty.

Hi Tharisa. I agree that the dividend commitment is excellent and a much needed show of confidence. This commitment has limited the downside pressure on the share price. I am grateful for that.

The persistent issue however is Karo. Karo is a sword of Damocles because the project is uncertain to be value accretive and undermines the balance sheet, which could become a problem if Chrome pricing corrects. Unfortunately this creates a great deal of uncertainty and risk. The market does not want you to sink such a large amount of capital into Karo with such an uncertain outlook for PGMs.

Is Tharisa able to more clearly justify this project in the context of the plethora of unknowns regarding PGM and Chrome outlook and the balance sheet concerns? Until management can speak to this project with absolute clarity, the share price will remain under pressure. To date it feels like management is irrationally dogmatic in the face of much uncertainty.

I believe 80p is a fair level, then we need to see improvement in the operating environment to move beyond that.

Commitment to Karo is very concerning. With the level of uncertainty regarding the PGM market, I can't fathom this. Even worse, in a jurisdiction as rotten as Zimbabwe. The mind boggles. At the very least, I hope there is an indefinite delay to construction announced when full results are released. I expect further weakness today.

Huge share purchase by a director

Good to see the share price rising again, supported by moderating 10 year gov bond yields. Still much undervalued.

Hi damofarl, some of your assumptions are very debatable so let me explain where I can:

MPNU is shallow water and was not involved in the Exxon lawsuits regarding oil spills (please show evidence if otherwise) - the spills were related to deep water, which were anyway settled with NNPC a while back, so it is unlikely that MPNU has material legal liabilities, although we will only know for sure when the prospectus is published.

Decommissioning provisions must be set aside during operation, i.e. cash into escrow, during the life of field production. Any under-provision in this regard will be calculated in the final adjustments to the cost of MPNU.

There will not be a payment or gift of Working Interest to NNPC in exchange for Seplat's purchase of MPNU because this would not be within the law. There is no mechanism for this. If NNPC insist on first right of refusal, it will have to go through the courts, which is not what the government wants, on many levels.

The cost of MPNU will be relatively marginal once adjusted for cash flow since the deal strike date of 1 Jan 2021.

The cost of the acquisition debt facility is SOFR + a spread, i.e. in dollars and not linked to Nigerian overnight rates. Estimated range is 12-13% I believe, but will fall as SOFR falls. Anyway, with the much reduced cash price of MPNU, Seplat will probably pay for it entirely in cash. They have the cash, why use debt at all?

Putting that together, in my view the deal terms are very likely to be unchanged from here because there is no mechanism for change, but NNPC will receive commitments on investment capex to raise production.

Please put all this together - we are highly likely in line to take receipt of an almost free lunch. I guess around $400m in cash will be paid for an asset generating around $400m in free cash flow annually. The impact on the share price will be equal to what the market is willing to value $400m annual free cash flow at - in my view at least 3x, so >$1bn. The market cap is currently $900m. The market cap once the deal is completed should be at least $1.9bn.

Hope this helps.

The larger seller was cleaned out at 24p. It's been a very rapid and lucrative ride back up. I'm going to sit on it until at least 50p. Beyond that I will want to see better results.

One very very rarely sees a free lunch in equities but if there was ever one this is it. Free lunch.

Correct, there is no equity dilution and the headline deal figure will be much reduced by cash flow adjustments since the deal date of Jan 2021, so there will be limited debt increase too. That means the vast majority of the value creation is straight to equity, I.e. market cap goes UP.

I can answer a couple of those questions. The timeframe should be around 3 months as the prospectus and other preparations are well in advance given the two year wait. I don't know the rules but presumably a suspension can't be justified if sufficient information on the acquisition is in the public domain. Shareholders will vote on it. MPNU will remain a separate entity according to original announcements if i'm not mistaken, but wholly owned so synergies can be capitalised upon.

You need to use the black market rate for GBPNGN which is around 1450, which implies 145p. There is a premium in there for insurance against further devaluation, so I wouldn't say the spread is particularly exaggerated, but it does show some local confidence in the share.

Obviously if SEPL is suspended on the announcement (hopefully not) then there won't be an opportunity for getting onto this train before the full financials and prospectus are disclosed and transaction is closed, just pointing out.

The original terms are subsisting! The new administration is business friendly and want the transaction closed forthwith. Also note NNPC can't approve Oando/ENI whilst demanding different terms for SEPL/MPNU; and Oando has family linkages to Tinubu.

The one change these last two years is that MPNU is now producing closer to 80k bopd as have been under investing in production, which is fixable; I'm sure the government want assurances that capex will be raised, which is in everyone's interest.

It could be a very happy and lucrative Christmas!

Strongly suspect SEPL will commit to an accelerated investment programme to recover and grow MPNU's production in the short term, but this is what they will have done anyway.

I agree SEPL will have to break 200p with MPNU, but note that as a reverse takeover the deal will require a prospectus and possible share suspension (?) which will be a 3-4 month process. Hopefully a suspension won't be necessary. Until the prospectus is available we won't know the economics of the transaction or what MPNU's financial statements look like. It will slowly dawn on the institutional market how interesting SEPL has become and the rising share price + trading vols will drive up liquidity and support further valuation re-rating as more institutions enter. That's how I see it. Happy days ahead.

I've done a lot of work on this stock, am convinced it is solvent and going to be very profitable again in time - for that to happen, we need some currency stability across key markets to deliver consistent growth, but even minor passthrough of cash flow to the holding company then dividends will be material at the current share price

There is no easy fungibility between the two lines of stock, so you can't expect one to impact the other, not in a timely manner anyway. However, it still matters how the local line is trading. You would be concerned if the local line was falling, so you should be pleased to see the local line rising. I am certainly pleased to see it. At the very least, local investors are well aware of local operating conditions and the political variables in Nigeria.