The theoretical takeover value of the largest upstream oil and gas firms are nearly at par with each other.
The enterprise value of Seplat Petroleum Development Company Plc is N257.03 billion, while Oando Nigeria Plc’s theoretical value is N235.26 billion, but the amount could grate due to movement in share price and working capital.
The analysis should give shareholders an idea of their companies are worth on the face value, so as not to be bamboozled by valuers and stockbrokers.
The enterprise value of a company can be ideally defined as an amount that represents the entire cost of the company in case some investor intends to acquire 100% of it.
The formula for enterprise value is computed by adding the company’s market capitalization, preferred stock, outstanding debt, and minority interest together, and then deducting the cash and cash equivalents obtained from the balance sheet.
Seplat’s market capitalization as at 27th of September was N282.51 billion, based on a share price of N556.60, and its working capital (total debt minus cash and cash equivalent- stood at (N25.48 billion). The addition of N282.51 billion and (N25.48 billion), will give us N257.03 billion.
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Similarly, Oando’s market capitalization was N47.86 billion (trading at N5.56 per share) the same day, while its working capital stood at N187.40 billion.The addition of market cap and working capital will give us N235.26 billion.
Oando has more debt and cash and equivalent than Seplat, which is why it has a robust Enterprise value. What this means is that a knowledgeable willing buyer will pay more to acquire the cash and debt of Oando.
Investors shouldn’t fret about the ability of these firms to embark on new project because they have excellent liquidity.
Oando and Seplat have cash conversion ratio (CRR) of 4.91 and 2.80, respectively, as they continue to increase their capital expenditure spend with a view to drilling more oil and delivering a higher return to shareholders.
The Cash Conversion Ratio (CCR), also known as cash conversion rate, is a financial management tool used to determine the ratio of the cash flows of a company to its net profit. In other words, it is a comparison of how much cash flow a company generates compared to its accounting profit.
The resulting ratio from this calculation can be either a positive value or a negative value. This can be summarized as: if the ratio is anything above 1, it means that the company possesses excellent liquidity, while anything below 1 implies it’s a weak CCR. Anything negative suggests the company is incurring losses.
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The upstream oil and gas giants plan to magnify their investment especially in the area of gas.
Seplat plans to increase revenue from gas, as it will raise will raise $700 million for a joint gas project scheduled to start production next year as the government steps up plans to reduce the country’s reliance on oil.
The project, known as Assa North-Ohaji South, is one of seven to boost gas production and infrastructure development in the West African nation, the continent’s biggest producer of crude. ANOH Gas Processing Co., which is owned by Seplat and the Nigerian Gas Co., a unit of the Nigerian National Petroleum Corp., will develop, build and operate the plant in south eastern Imo State.
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