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Tuesday, June 6, 2023

Seplat’s Investors Set for Jump in Returns as Debt Ratio Shrinks

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Seplat Energy Plc is not susceptible to default risk and its ability to effectively manage debt indicates the downstream oil and gas firm will be plowing more cash into dividend, share buyback, the settlement of future finance obligations, and funding future expansion plans.

For instance, Seplat’s debt to equity ratio stood at 41.11 percent, from 43.76 percent in March 2022, according to MoneyCentral calculations.

That compares to a negative debt to equity ratio of peer rival Oando Plc that delisted from the stock exchange a few months ago.

It is interesting to note that Seplat Energy’s low leverage means it may be well particularly positioned to navigate the current inflationary environment, rising interest rate, and potential economic downturn.

Analysts say that the underlying story is that the company has an improved balance sheet and a strongly stable cash position which gives it the leeway to invest in more rigs.

Of course, the downstream oil and gas giant has been on a growth trajectory since 2016 when an attack on a paramount oil facility by the Niger Delta militants undermined earnings.

It is safer for the proportion of a firm’s operations to be financed by equity than debt which exposes an entity to bankruptcy risk.

Seplat has cash flow from operating activities to a tune of N65.27 billion as at March 2023 and net cash flow from operating activities of N64.22 billion.

In the last several months, Seplat’s revenue has been soaring on the back of high commodity prices on the back of the Russia and Ukraine war.

The company continued to record improvements in the recovery of receivables from the major JV partner and received $96 million in Q1 2023 towards the settlement of cash calls from NEPL on OML 4, 38, & 41, and OML 40.

As a result, the net NEPL receivable balance now stands at $72 million, down from $90 million at the end of 2022. The majority of the outstanding cash calls became due in Q1 2023.

It is steadfast in rewarding shareholders from distributable profit as it paid N20.39 billion in dividend for the year ended 2022, and that is a 233.70 percent surge from 2021’ N6.11 billion.

The company’s shares have gained 6.83 percent so far this year, outperforming the NGXASI of 2.18 percent.

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