CardinalStone Research
Seplat Petroleum Development Company Plc (SEPLAT: TP 757.74 – BUY) filed its 9M’19 earnings report today, announcing an EPS of N99.6/share (2x of 9M’18). The upsurge was mostly buoyed by tax credit as an effective income tax rate stood at 1.8% in 9M’19 (9M’18: 57.0%). The company proposed an interim dividend of $0.05.
Some positives:
- The firm recorded N8.5 billion in other income (versus a loss of N2.5 billion in Q3’18). This includes gains derived from under lift (remeasurement on shortfalls between the crude oil lifted and sold to customers to the current market value) and tariffs charged from use of its pipelines by other firms.
- Finance expense declined by 44.3% YoY in Q3’19, driven by a 34.4% decline in borrowings. This reflects management’s sustained intent to deleverage its balance sheet. For context, debt to equity declined from 27.8% as at FY’18 to 20.2% during the period. However, it is likely that the potential acquisition of Eland may require some debt financing. This could potentially weigh on interest costs in subsequent quarters.
- Despite the 29.8% decline in PBT in Q3’19, EPS grew by 45.0% to N33.82/share likely due to tax credits recorded during the period. The effective tax rate was 3.0% in Q3’19 versus 53.4% in the corresponding quarter.
Some concerns:
- Top line declined by 37.9% YoY in Q3’19, weighed by lower liquids production and falling oil prices. Management attributes the lower production levels to rig mobilisation delays due to higher levels of maintenance and asset integrity work carried out during the period. The average price of crude oil and gas in Q3’19 were $62.2/bbl (Q3’18: $75.9/bbl) and $2.8/MMscf (Q3’18: 3.1/MMscf) respectively.
- Likewise, gross margin declined by 17.1 ppts YoY in Q3’19, weighed by the aforementioned jump in maintenance cost (+60.8% YoY) and rig related expenses (from N12.0 million in Q3’18 to N1.3 billion in Q3’19).
Please click here for the full result.
