seplat
SEPLAT Petroleum Development Company Plc (BUY)
Analysts at ARM have placed a BUY recommendation on Seplat. They hinged this on higher crude oil prices, improved cash flow due to a debt rescheduling exercise, as well as increased production volumes. At ARM’s crude oil and gas price projection of $60/bbl and $3/Mscf respectively, Seplat would have a 40% YoY expansion in revenue to $634 million, comprising oil revenue at $494 million (+50% YoY) and gas revenue at $141 million (+13% YoY). Oil is currently trading at $70 per barrel. The company has also hedged 3.6mbbls and 3.0mbbls in H1 and H2 2018 at an average strike price of $40/bbl and $50/bbl respectively, in a bid to support its cash flow strategy. ARM has forecast a 36.4% upside from its current price of N698.30. The operational performance of Seplat is directly correlated with the price of oil. With oil price now above $70, it is hard to bet against Seplat. Its price-earnings ratio of sub 5x is coupled with a price to book of 0.72 suggest it is also relatively cheap. We would consider buying more Seplat at this stage as we look ahead to the stock hitting N900 by year end and N1000 in a year’s time.
FBN Holdings Plc (SELL)
Analysts at ARM rate FBNH a strong BUY. The factors behind the recommendation were namely lower loan loss provisioning (due to a rise in crude oil prices), no plans to grow risky assets and its adequate capital buffer. Given the recovery in crude oil production and higher crude oil prices, ARM expects First Bank’s upstream O&G NPL to moderate to ~30% in FY 18. They also forecast NPL and Cost of Risk in FY 18F to print at 18% (FY 17E: 20%) and 3.5% (FY 17E: 6.5%) respectively. Oil and Gas loans constitute 90% of First bank’s non-performing loans at 9M in 2017. The bank also plans to streamline its branch network. FBNH trades at a P/B of 0.7x compared to peer average of 1.4x with FY 17 P/B of 0.4x at a discount to the peer average of 0.9x. Furthermore, at current pricing, its 2017 expected dividend translates to a dividend yield of 6.4%. ARM’s analysts expect a 32% upside from the current pricing of N12.25 as at today’s release of the report.
OANDO Plc (SELL)
The Oando board has approved the results for the last financial year ended in December 2017 but it is yet to be published. The release of the results is not expected to have a major positive effect on the stock value as Investors sentiments towards OANDO is negative due to the unpredictable nature of the stock. Since the suspension was lifted, OANDO Plc has gained 26% although analysts doubt whether this has anything to do with its fundamentals. So due to these reasons, we would advise that this stock is offloaded if it is currently part of your portfolio in order to avoid drama.
