Seplat is named as a top pick among African oil and gas firms by Renaissance Capital in a January 13 note.
“Our top pick remains Seplat (BUY, TP GBp260); given it’s fully funded status and improved opportunities to expand its asset base through M&A deals. For us, the market seems to be ignoring the company’s $299mn net cash position and is giving Seplat no credit for its pioneer status,” Rencap analysts led by Ildar Davletshin said.
Seplat is trading on FY15E 2.8x P/E and offers over a 10 percent dividend yield.
Rencap expects M&A to become an even more important performance driver in 2015 than previously, as more players look for farm-outs, some finding it hard to maintain high leverage following expensive deals in 2014, and others potentially becoming targets for companies with stronger balance sheets willing to take advantage of a widening gap between market valuations and core NAV.
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Afren has already been mentioned in the media as a possible target for merger deals, especially after it announced on 22 December 2014 that it had been approached by Seplat in this regard.
Seplat should be the main beneficiary of the likely cooling in competition for new assets, given its strong balance sheet, tax breaks and operational track record.
Seplat is estimated by Rencap to have $1.1bn of cash available for a potential acquisition (including $434.7mn in cash, $453.1mn in investment deposits and $232mn out of $418mn outstanding receivables from the Nigerian Petroleum Development Company [NPDC]).
