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A Nigerian Company sitting on a cash pile that sets it apart from others is Seplat Energy Plc, the largest upstream oil and gas firm in Africa’s largest economy.
Customs Streets, the headquarters of the Nigerian Stock Exchange pays a lot of attention to corporate earnings.
But reported earnings are susceptible to window dressing, an aggressive fraudulent accounting method that sometimes leads to the collapse of a firm.
That is why meticulously shrewd investors should keep a keen eye on companies that generate chunks of cash.
Cash is king! And without it a company will not brave the storm. It is important to note that cash is used to: pay inflation fighting dividends, repurchase shares, and grow the business organically.
Investing legend and Berkshire Hathaway CEO who is famous for his love of cash-flow producing business would have added Seplat Energy to his portfolio.
However, that is practically impossible because the Oracle of Omaha (as Buffet is popularly referred to) is an American investor. Seplat boasts double-digit free cash flow margins (free cash flow as a percentage of sales).
Of course, the upstream oil and gas giant which has generated $112.18 million in free cash flow in the first quarter of 2022 as free cash flow margins increased to 46.38 percent in March 2022 from 29.49 percent as at March 2021.
When it comes to measuring the performance of a business, free cash flow margin is one of the best performance indicators available. Specifically, it’s a profitability ratio indicator. It shows how well a company is converting sales to cash.
The company’s shares have been hot in recent months on the strong rebound in energy prices, and the war in Eastern Europe is a blessing in disguise as it sent commodity prices spiking.
At the time of writing, Brent crude was trading at $116.80 per barrel and West Texas Intermediate was changing hands for $115.90 per barrel.
Both benchmarks were up despite an OPEC+ decision to increase their monthly production increase target to close to 650,000 bpd for July and August each.
Seplat is one of the star-performers on the NGX-ASI as its shares have gained 98.13 percent so far this year, outperforming the entire index.
The company’s shares traded at N470 in 2015, but it touched down at N1260 as at close of trading on June 3, 2022.