Seplat Energy Plc could take advantage of stronger energy prices to try to attract new investors through a hike in dividend payouts as free cash flow has significantly improved, which signals a sturdy balance sheet.
The company’s free cash flow was $125.97 million in the second quarter of 2021, according to a statement by the company.
That compares with a negative figure of $120.92 million the corresponding period of last year that saw global energy prices capitulate to the coronavirus pandemic. In short, oil prices fell to zero level as there were no buyers since all economies shuttered.
Seplat’s Stellar performance was largely supported by the global easing of Covid-19 restrictions, vaccination campaigns, the combination of fiscal and monetary measures, and accelerating activities in key markets.
The company has been surmounting different headwinds. For instance, an attack by the Niger Delta militants on the forcados facility in 2016 and the sharp drop in crude oil price of mid 2014 that tipped the country in its first recession in 25 years dealt a great blow on earnings.
While Seplat has already declared a cumulative interim dividend of 50 cents, a constant move towards its quarterly policy, investors could call for higher payout on the back of improving outlook.
Oil prices have surged around 40 percent in 2021 to around $70 a barrel, prompting big oil rivals BP, Chevron and Royal Dutch Shell to hike dividends and launch share buyback programs.
In corporate finance, an improvement in free cash flow indicates the ability of a company to reward its owners from distributable profit, meet debt obligations, and finance expansion plans such as drilling new oil wells.
The company cash flow has proven adequate to meet its obligations and it is not exposed to financial risk as its debt to equity ratio is as low as 0.46 percent in June 2021 from 0.42 percent the previous year.
Net debt excluding lease increased by a mere 3.80 percent to $456.37 million, from $439.37 million. Net debt including lease increased by 3.80 percent to $462.41 million.
The largest upstream oil and gas firms posted revenue of $308.77 million in June 2021, while earnings before interest taxation and amortization (EBITDA) rose by 55.56 percent to $178.90 million in the period under review.
Gross profit surged by 136.10 percent to $88.90 million in June 2021 from $37.65 million the previous year.
Analysts at Chapel Hill Denham in a recent note to clients put a BUY recommendation on Seplat’s stock, with a 12-month target price (TP) of N722.98.