Culled—-Proshare
June 5, 2017/FBNQuest Research
Outperform rating maintained
Seplat Petroleum Development Company’s (Seplat) Q1 2017 results were hurt by disruptions to the third-party operated Trans Forcados System (TFS), the company’s major export pipeline route. Seplat posted a loss before tax of –US$18.3m. This marked the fifth consecutive quarter of losses.
The TFS which had been out of operation for over 15 months is now back on line. However, we expect management to remain focused on the development of export route alternatives in order to de-risk future production. Following conversations with the company, we understand that engineering work on the Warri Refinery Jetty and the construction of the 160,000bpd Amukpe-Escravos pipeline are both on schedule to be delivered in H2.
As such, the firm’s performance over subsequent quarters during 2017 should materially improve. A major benefit of the Amukpe-Escravos route is the absence of production losses due to an oil-water reconciliation factor.
Hence, we believe the Amukpe-Escravos route could be Seplat’s likely preferred export route going forward. Given the difficult H1 period, we have cut our 2017-18E EPS estimates by around -54% on average.
However, our new price target of N480.5/share (US$1.5) is relatively unchanged and represents an upside potential of 37% from current levels. While the NSE ASI has gained +26% over the last three months, Seplat shares have shed -13%.
Given the potential upside on the stock and a likely turn in the company’s fortunes following the resumption of the TFS and efforts to de-risk output, we retain our Outperform rating on the stock. At current levels, on our published estimates, Seplat shares are trading on a 2017E P/E multiple of 22.9x for an EPS growth of around 198% over the 2017-19E period. 
