After 50% Plunge, This Nigeria Gas Producer Has Analysts Saying Buy

(Bloomberg) -- Shares in Seplat Petroleum Development Co. may have slumped more than 50% in London this year, but analysts are maintaining their positive view on the Nigerian oil and gas producer: it has 10 buy recommendations, two holds and no sell ratings, data tracked by Bloomberg show.

Natural gas sales at fixed rates give Seplat some protection from the swings in oil markets, while it shielded itself from the worst declines in crude through price-hedging agreements, analysts said. The acquisition of Eland Oil & Gas Plc, announced in October, will boost Niger Delta production this year, they added.

Seplat rose 1% to 59p as of 10:57 a.m. in London on Wednesday, paring its worst year since the Nigerian company's shares began trading in the U.K. capital in 2014. The dual-listed oil producer's Lagos stock is down 35%, compared with a 5.2% drop in the local benchmark index. The stock fell 10% on Wednesday, the most allowed by the exchange in a single session, at 428.8 naira as of 10:50 a.m. in the Nigerian commercial capital.

Here's what some analysts are saying about the outlook for Seplat:

Alternative Resource Capital

Seplat has a decent cash balance to weather current headwinds in the oil sector, Dragan Trajkov said by phone from London.
“A good chunk of their revenue comes from gas at fixed prices, which does not depend on current crude rates; the company will be less impacted than others that completely depend on oil or the global gas price.”
“Revenue could be flat, which will be a good result compared to other peers. They may have to withdraw up to $100 million from their cash pile if the oil price goes back to unprecedented levels.”
Earlier, in an April research note, Trajkov said that “when the sector turns around, the company will be among the ones standing strong.”

Vetiva Capital

The Eland asset will boost the company's oil production in 2020, Luke Ofojebe, analyst at Vetiva Capital, said by phone from Lagos. He confirmed his buy rating on the stock this week.
Oil revenue will decline year on year due to Covid-19, although the global easing in lockdown measures will support the oil market.
Target price 701.25 naira.

Asset & Resource Management

“Seplat's hedging arrangements limit the exposure to the risks in oil prices this year and the downside,” Janet Ogunkoya, analyst at Asset & Resource Management Co., said by email.
The Eland acquisition will boost Seplat's oil volumes and outlook as management plans to reduce production costs.
The long-term strategy to increase gas exposure through the Assa North-Ohaji South gas project further improves Seplat's outlook, given the less volatile, contracted gas prices.
Ogunkoya has a buy rating and a price target of 828.90 naira.