Member Info for SeaTank8300

I understand how these headlines read badly but ripping the band aid off was the right thing to do. Fuel subsidies have been ruining the fiscal position for years, crippling the government's ability to spend, and there was an enormous black market in fuel across Nigeria's borders that mainly benefited fuel traders and consumers across the border. The very poor don't have transport and don't use LPG so are hardly impacted. Urban users of public transport are able to absorb the cost of their travel albeit painful in the short run. The fiscal position of Nigeria was heading for default until this change - the turnaround will result in a surge of investment and a return of business confidence which will far outweigh any short term negative consumer sentiment. There was also massive scale fraud in foreign currency trading whereby industries such as the oil sector with access to the official exchange rate window have been exchanging Naira for dollars for importation of equipment but then selling the dollars on with a fat margin, a transfer of wealth from the state to private pockets. Slow track reform usually never reaches its destination in these countries as certain interest groups lead protests and eventually undermine the reform drive. That's my view.

Agree Trek, assuming ANOH completes in Q4 we're looking at another several tens of millions $ annual EBITDA and all likelihood it will be entirely directed to dividend from 2024 onwards which on my numbers results in a minimum of $0.25/share in dividends yearly, which at 200p is still a 9.0% yield in the pocket. That doesn't give any credit at all to domestic gas price liberalisation upside or M&A, both of which are likely outcomes in time.

I guess it may be good news coming re appointment of minister of petroleum

The local share price is trading at a GBP equivalent of 1.73p (NGN1693.60)

Locals know something?

Exciting stuff.

Argh, my data feed is giving me problems, the traded value in the local line was more like $215k today, not a great deal. But anyway, good to see the price level moving upwards.

This rise today was on value traded of $1.85m, following $2.06m traded yesterday - decent local institutional demand for SEPL pushing the share price up. The share price is equivalent to 152p now. This is a good sign.

I put it to you, if there is a board plan to cancel the treasury stock and accelerate dividend payout, wouldn't they first want to accumulate as many shares as possible in treasury via buyback before unleashing such a share price re-rate? For long term holders, not those after a quick buck on a trade, it makes total sense to first drive buybacks, which is also tax efficient method of returning value to shareholders, before later driving dividends and cancelling treasury shares.

Those with patience will reap rewards here.

Plus hasn't been de-rated, it has flatlined in terms of valuation multiple.

To be clear, its PE ratio was 5x at end of 2016; also at end of 2018, also end of 2020, and is today still is 5.0x.

Meanwhile, EBITDA and EPS are both up around 300% during that time.

That is why the stock price has risen 300% in that time period.

The company has 30m share in Treasury - we don't know what will be done with these but we do know that they amount to around 30% of total shares in issue and this could be transferred to shareholders easily by cancelling them. Management can't give these shares to themselves, obviously - the board represent the shareholders and most are INEDs, so they wouldn't sign off on it.

Share based compensation to management has never been a great deal in proportion to the earnings delivery of the company. This isn't an issue.

The reason for the low multiple valuation ascribed, IMO, is the variability in earnings, black-box risk management system, and arguably low visibility in customer retention despite actual retention being very good. That said, the valuation multiple more than offsets these unknowns, and we know that Plus is broadening its business to diversify.

It's a pretty sweet set of opportunities in my view.

Don't get yourselves too excited about results next week, the big news events (ANOH and MPNU) won't come at these results. With luck, production may surprise on better uptime via the AEP. There might be a word on expected timeline for ANOH - but the OB3 spur line completion is dependent on this river crossing engineering issue and that's out of their hands. I doubt the dividend will be raised until ANOH is operational. So in my view it's just more of the same: steady production/progress, and another quarterly dividend to bank.

Tinubu is supposed to announce his cabinet by the end of July, which is next week or thereabouts, so a confirmation that Seplat's major shareholder Austin Avuru is minister of petroleum would be a boost. Then again I don't think it really matters overwhelmingly if he is not, as ultimately the call will be the President's, and he has shown great support for liberalisation to date. Sign-off for MPNU could still take several months.

I'm guessing that the rise in SEPL's daily traded volume lately is to do with Frontier and Africa institutions forward-looking ANOH's operational start-up + big increase in the dividend (in my view it could double), rising probability of MPNU's sign-off, and likelihood of further liberalisation movement for example in domestic gas pricing. Share price has much further to run over the coming months, in my view, but underscore MONTHS, not weeks.

Don't worry about it testpack3, the rerate is coming. There is nothing better than to be comfortable in what you own and having high conviction in future gains. The market will do its thing in its own sweet time.

Somerset Capital's Dividend Growth fund exited Seplat at end of June, selling almost 1m shares. Buyers were Old Mutual's African Frontiers fund and Coronation's African Frontier fund, i.e. Africa-focused funds who know Nigeria as a local market and are substantially better informed. This was a big mistake from Somerset Capital, which we know hasn't been making good choices for some time with awful performance. This speaks volumes regarding what I said a couple of weeks ago: UK managers don't understand Seplat and what is coming, and the UK market has no bearing on the direction of travel for this stock. Frankly, it is amusing to see. Bye bye. Onwards and upwards.

What a rollercoaster this is, and a generally upwards one!

Rumours going around that major shareholder, founder and ex CEO Austin Avuru has been made minister of petroleum. I think we can safely assume the MPNU transaction is in the bag if this is true. It hasn't been corroborated anywhere official yet.

Seplat's legal claim against Orjiako alluded to $300m in value being offered to NNPC by him, which, depending on the final transaction price used, implies 18-24% of MPNU. I've also seen the 70:30 mentioned though. I think it will be one of those, and may involve Seplat funding the NNPC stake unfortunately (but I hope not), then again with the new government being so private sector friendly there is a fair chance that the original deal terms hold.

"If" the MPNU deal completes, firstly it will be interesting to learn what level of production has been carved out and passed to NNPC and how payment for that carve-out is made. We know that SEPL has made an offer to the government to share a proportion of MPNU's production, but we don't know how much and at what cost. This will be important to the eventual economics. But in either case the outcome will be transformative for SEPL since MPNU is a big producer and very cash generative. On completion, SEPL is likely to outline a reinvigorated capex plan for MPNU which is likely to focus on maitaining oil production whilst investigating the building out an infrastructure platform for the export of LNG to Europe. I don't know how long this will take but Brown has made it clear that he sees this as a logical next step. Free cash flow generation is likely to be significant despite these investments, which IMO will be directed to firstly paying down debt taken on the acquisition and second raising the dividend further. I would be very surprised if the dividend doesn't receive at least a 10 cents boost purely from MPNU. Plus the 10 cents from the operational commencement of ANOH, that would be 20c of additional annual dividend, on top of the 15c current level, so 35c of dividends in total = approx 25p in annual dividends after withholding taxes. That would imply a 19% yield at today's share price. I can't imgaine the share price wouldn't move to 200p or beyond - even at 200p that would be a 12.5% yield.

Additional catalysts could be the liberalisation of gas prices to industrial users in Nigeria, announcements in renewable energy, additional acquisitions of asset divestments from other majors, and further dividend increases as debt from MPNU is paid down. Is investment story has legs.

I'm doing some work on Kainos and the delta between the two in terms of sustainable EBITDA margin. I need to do more investigation but believe it is to do with size of contracts, how time is staffed and billed, and possibly type of work. Fundamentally I don't see a reason why TPX shouldn't manage a similar level of operating margin. Kainos is 4x the size in revenue terms, not a massive difference, but achieves 18%+ EBITDA margin and is 26x the size in EV terms, which is a huge difference. As TPX brings EBITDA in line, the rerate will be considerable.

In case folks have forgotten, the dividend will at least double once ANOH is running smoothly, i.e. by first half of next year. That will take this share to a 15%+ yield in a matter of months, which is around 4% paid out quarterly, with only upside risks to that. This stock was too cheap at 100p and it's too cheap at 130p. I'll consider taking profits a lot closer to 200p.

As a reminder, ANOH will generate 10k boed net to Seplat when operational; Seplat has nothing else to do with the cash flow; management said in the past they woud pay out the cash flow from ANOH; the board believe the catalyst for a fair valuation of SEPL is a higher dividend. The only thing that can delay this outcome is the oil price crashing.

There's a lot of junk out there, especially in O&G, risky aged single-field companies and early stage producers with funding and cash flow risks. The UK investor community is addicted to this rubbish.

SEPL is a diversified producer with long field life and very cash generative. That's the difference in my view.

Good decision Tom. I've thought about this a lot. In terms of external factors that drive the share price, it's mainly the oil price. I see Nigeria risk and local issues as internal in a sense. Somone made the point about how grim the markets are and particularly the LSE with so many bombed out names, but does this drive the trading direction of SEPL? I don't think so.

Most of SEPL's free float is held either by Africa equity funds, Frontier Market funds, or Emerging Market funds, with most of the remainder held by the local pension funds. None of these shareholders care much about how the LSE is trading. Take Sustainable Capital: this is an Africa fund, so they look to how South Africa is trading relative to Nigeria, and in this regard South Africa is a basket case and Nigeria is a reform story and is attracting capital. Frontier funds compare with Vietnam and a host of other third tier markets - frankly, most other than Vietnam, actually even Vietnam, are in a severe funk. Then EM funds - more competition for capital here from India etc, but China is looking awful ,and Nigeria is again an interesting reform story for those looking for uncorrelated opportunities.

So don't be surprised that SEPL is not correlated with developed markets and particularly the LSE and often moves in an opposite direction.

Fundamentally, we have a couple of major catalysts for the stock, plus we have a supportive governance reform story in Nigeria, plus the Nigerian market is once again attracting positive investment flows from Africa funds, Frontier funds, and perhaps even EM funds. SEPL is paying healthy quarterly dividends with a fat special at the end of the year. There's a lot to like about this very cheap, cash generative stock and I really do hope it can continue to substantially outperform the LSE with a low risk of retrenchment other than in respect of a falling oil price.

As I see it, management are guiding for circa 15% top line growth over the next three years to March 2026 (£127m in revenue in 2026, approx), with a plan to improve EBITDA margin to at least 10% in the year to March 2026, which will equate to £12.7m in EBITDA. If they meet or beat expectations over the coming two years I would expect the market to forward value this progression for 2026 (i.e. early in calendar year 2025, which is 18-24 months away) and a "fair" valuation multiple will be a minimum of 10x EV/EBITDA in my view, which would equate to £127m. Net debt shouldn't rise, in fact it should fall, with cash generation and no further acquisitions, but assuming debt stays the same (unlikely), this would imply an equity value of at least £110m. Today's equity value is £32m. That is 3.4x increment in the share price from today's level of 34.5p or a 244% return over the coming 24 months. This requires management to meet or beat the lower end of their guidance for the next two financial years. This is an attractive risk reward in my view. I'm bummed to have owned and held TPX down from 220p levels but I see light at the end of this dark tunnel and a good return prospect over the coming 18-24 months. Conviction here is underscored by a new and more experienced management team under Bjorn Conway and Steve Winters, a materially lower staff attrition or churn profile since the beginning of this year (that is now industry beating), and a management strategy of conservative guidance that can be met or beaten.

If my fundamental analysis makes sense to you, you might want to also take a look at PLUS and SEPL, two other names I hold which offer >100% return opportuntiy with a highly asymetric risk-reward profile.

GLA