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Local share is on the rise again

£3m contract award:

TC645 - Research, Evaluation and Data Sciences

Manchester City Council

Manchester City Council (MCC) is looking to establish a procurement framework to help delivery its research and intelligence work, in support of its wider objectives. The framework will provide a mechanism through which expert support and advice can be effectively obtained to meet the myriad of needs of Manchester. The Performance Research and ...

Procurement stage Awarded contract

Contract location United Kingdom

Awarded value £3,000,000

Awarded suppliers Axia Origin Ltd, BMG Research Ltd, Cambridge Econometrics Ltd, Centrifuge Consulting Ltd, CM Monitor (Britain Thinks) Ltd, Cordis Bright Limited, DAS Ltd, Deloitte LLP, DJS Research Ltd, Ekosgen, Enventure Research Limited, Forever Consulting, M E L Research Ltd, Methods Analytics, Metro Dynamics, Mustard Market Research Ltd, Ove Arup & Partners Ltd, Savills (UK) Ltd, SQW Ltd, Steer Davies & Gleave Ltd, Team Telemarketing Ltd, The Good Side, TPXimpact Limited, Trilateral Research Ltd, UrbanTide Limited, Wavehill Ltd, WPI Economics, York Consulting, ZK Analytics Ltd

Publication date 26 October 2023

I would just add for those who are new to this name, SEPL's share price is not much correlated with the oil price (around 0.3) - the share price doesn't wax and wane with the POO, hardly at all. Personally, I like that a lot. Even more importantly, nor does the dividend. I would say there is zero practical correlation with POO, which is very meaningful for those looking for a sustainable, reliable, dividend. Even through the COVID debacle, SEPL delivered the core dividend without disruption. How many oil companies can say the same?

Parsing Roger's comment re MPNU, I am certain that his new emphasis on "increasing confidence" is noteworthy: "Increasing confidence that President Tinubu's administration will approve our acquisition of ExxonMobil's share capital of Mobil Producing Nigeria Unlimited (MPNU)." In my view it's the closest he can get to saying he is certain as he can be that the deal will be signed off.

Every soundbite from the new government on this subject to date suggests the deal will happen. It is so VERY transformational for SEPL, but the share price is yet to factor the high probability of a successful outcome. I suspect this is due to the illiquid nature of the stock as otherwise hedge funds and even long only would be attracted to this wager. So we'll ned to wait for formal confirmation. Patience will pay dividends here.

As for ANOH, yes no great surprise here about the delay, although I would say I am personally a little disappointed that it will take a further 12-18 months before first dividends can be paid from ANOH, but at least we now have visibility on this. The economics they have presented are very conservative - both in terms of oil price and production deferment, which I believe is uptime/downtime (correct me if I am mistaken). The $30m could easily become $50m with good uptime and oil price at $80 - I assume they have estimated uptime as low as 75%, so that they can deliver beyond. But in any case, cash flow from this quarter is at least 18 months away. Again, patience...as this has to flow to dividends, ultimately.

I'm pleased to read the explicit intention to reward shareholders with dividends, essentially as much as possible, and explicit confirmation that an intended special dividend at the end of the year is in addition to the 3c quarterly, which is the core dividend. I believe that the special will have to be the same, at the very least, as paid last time, i.e. 5c. So the annual dividend in the current oil price environment is 17c. Therefore the stock is yielding 10% as of today.

The go-slow approach to New Energy is a relief to me, as this means 1. they want the MPNU deal to close first, and 2. they publicly recognise that new capex projects are going to be very long duration in Nigeria and therefore need to be balanced against a rising dividend, which all investors want to see first and must be the priority. Roger himself has been absolutely clear that dividends are indeed the priority. This is a 10% yielder today, tomorrow it will be more.

The company did buy back stock on Thursday. Anyway, great results, showing their ability to generate consistent profits, and continuted progress with diversification, geographical as well as product wise. As it becomes clear that they can build a profitable business in the US too, the share price will need to rerate significantly.

I assumed it was one of Hanbury's , but I can't confirm it unfortunately. Perhaps I am mistaken.

Well thankfully the raise was at 45p not at 22p! We just need stable, consistent operational delivery, and time, to make this right.

Btw Odey is now Lancaster and as far as I know their funds are stabilised so they are not a distressed seller any more.

I think you're all right. Market has been suffering as ten year yields continue to squeeze, meanwhile re Jadestone specifically the market is concerned about the remaining life of the Montara FPSO and, as you say, another shut in or worse. I'm just relieved the oil price is holding up, so far.

I hope everyone is content with the share price momentum. It was only a couple of weeks ago that certain commentators were talking about it going to £10.

Hi Damofarl, I really hope that there isn't going to be a giveaway to NNPC to get this deal over the line. I suppose it is better to be cautious and expect the worst, but I hope it doesn't come to be. A giveaway would set the wrong tone in the context of this new administration's reform drive. Also, I don't see a legal basis for it - it would send the wrong message to FDI. But if it comes to pass then so be it. Either way, it must be very close to closing, as all indications from the new government to date have pointed to a resolution. It would certainly send the right message to have this settled before the two year anniversary of the announcement of the transaction.

Regarding the special dividend, this is a difference in perception perhaps - so long as it is clear that the special is directly linked to delivery of volumes at sufficient oil prices, my view is that the market will understand that the special is just that and 100% dependent on those two specific variables. I've seen this before with very cash generative oil companies, namely varying the dividend level according to the oil price and volumes. I don't think it would be disruptive and would underscore SEPL's investment case as a yield play. But in any case, the quarterly base dividend is a great result as it is.

The borrowing facility will be perhaps 500bp or 600bps above SOFR I guess so not cheap but not that expensive in the context of perhaps $400m of free cash flow vs maybe $800m in transaction cost post adjustments for backdating of the transaction and before supplemental payment at higher oil price (2026?). If MPNU goes through they will have plenty of cash flow to raise capex, finance debt, pay down debt, and raise dividend, but we won't know the actual financials until after the deal completes so it's all speculation at this stage. It's all good if the deal completes, that's for sure.

This has been the case for some years, the convents, the currency depreciations etc.

The covenant breaches are related to overdue loan percentages in India and have resulted in ASAI having to shrink the India business because their funding sources are being limited, but India is now a small contribution to the group and there is no recourse to the parent anyway, so there is no financial contagion risk here. I suggest you review the cash flow statement to understand the cash generation of the business. This business is not in any serious financial stress. Its market cap is less than annual cash generation.

My gut tells me the MPNU sign-off is going to be this year - 100% speculation on my part. But also, unfortunately, that OB3 and ANOH will be next year - again, 100% speculation.

I am hoping for too much but perhaps there is a minor chance that the board could introduce a regular, i.e. quarterly, special dividend, because why leave it to the end of the year? Their cash flow is very regular through the year, so why not match with the base dividend?

Anyway, either way, all is well on planet Seplat...one of the best performing mid caps on the LSE in 2023.

I'm intrigued as to why the Q3 results update has been moved to Monday, because the board meeting to discuss these results was today in Lagos and it is usually the case that results are published to the market the following day. Presumably the company is waiting for something in particular.

It seems that this company's market cap is now less than last year cash flow/cash earnings. I don't think there is a cheaper stock globally.

Odey now Lancaster are v v close to this company - they wouldn't be rebuilding their position one week prior to a terrible Q3 trading update, in my view. They have insights into this business beyond anything we have access to - regular meetings with management where they can understand the granularity of the business and monitor body language, and experts with deep knowledge of the sector. This major holding update is a very strong signal.

As for the board, it is legally obliged to act in the interests of all shareholders and, given it is a sizeable company with big institutions on the shareholder register, any funny business such as unjustified lavish share issuance to management or board itself would result in the board being dismissed before it can even happen. Israeli company law is very strict too, holding directors to account for this sort of thing. As I said, were this a Russian company with a low level listing on the LSE I'd be worried as there is no legal recourse, but this is not the case here.

I don't agree with the concerns that treasury shares will be somehow and illegally gifted to management or even its own board. This is just a ridiculous suggestion. It's not a Russian or a Chinese company incorporated in Cyprus or Turks and Caicos (!). I believe they are not cancelling the treasury shares in the event they find a value enhancing acquisition, that's my assumption. Ultimately the treasury shares will be cancelled if they don't find a good use for them. The business is diversified now, globally, with UK driving perhaps a third of revenues. It's increasingly a global business, so the stability and longevity of its cash flows is only improving as the quarters pass. I'd be fine with more in dividends, but buybacks make the most sense in terms of returning cash to shareholders from a tax perspective.

Agree, cutting dividend sends a terrible message and will result in further selling, so should only be considered if absolutely necessary. I don't see how it could be justified. I'd rather see Karo mothballed, frankly. Anyway, I'm pretty confident this won't happen so let's be a little more positive. Reasonable results today given the circumstances.

I don't know their financial situation but highly doubt the Pouroulises would sell Tharisa at a fraction of its asset value, so being acquired is extremely unlikely, in my view. The market value being ascribed to Tharisa does however send a message to management regarding Karo - why invest in a new mine that will be valued by the market at a fraction of its capital cost, not to mention barely be profitable at lower PGM price levels? In my view Karo should be mothballed for the time being and cash flow diverted to paying down debt and raising the dividend.