Seplat share price has now jumped 24 percent since the release of the company’s H1 2020 results despite posting a deep loss after tax of around N37 billion in the first 6 months of 2020.
The stock price closed on Friday at N385, representing a 24.19 percent return for investors from the N310 share price on the date of their H1 result release.
The oil company was negatively impacted by the sharp decline in crude oil price and lower demand for oil products due to prolonged city lockdowns in Nigeria and around the world. However, all that seems to be forgotten as investors seem to be snatching up shares in the company as the depressed stock price which now appears to be a bargain after seeing what analysts are now describing as a “better than expected result.”
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The company’s losses appeared to have slowed down in Q2 2020 after crude oil price began a modest recovery. In the first quarter of the year, the company reported a loss before tax of N31.1 billion compared to a loss before tax of N18.7 billion in Q2 2020 despite an 11.1 percent slide in company’s revenue between Q1 and Q2 2020.
Losses in Q2 2020 slowed down after the company managed to cut its general and administrative expenses by almost 43 percent in a single quarter and slowed its impairment loss by 83.3 percent. Gross profit fell 80 percent between Q1 and Q2 and without the miracle of steep declines in administrative expenses and impairment loss, Q2 could have been an absolute disaster for the oil company.
Year on year, the company recorded a revenue decline of 26.5 percent as revenue dipped from N108.97 billion in H1 2019 to N80.10 billion in H1 2020. Net profit in the period under review moved from N37.49 billion in H1 2019 to –N37.78 billion in H1 2020 representing a 200 percent profit decline.
In a chat with Titobioluwa Okunade, Head of Equity Market Research at EUA Intelligence an investment advisory firm based in Lagos, Okunade explained that the poor financial performance of the oil company can be attributed to the twin oil price shocks of COVID-19 oil demand drop and KSA-Russia crude oil price war.
“We can expect to see what is happening with Seplat across the industry with some companies even coming out worse than Seplat.” Okunade said. Multinational Oil explorers, ExxonMobil production business and Chevron posted losses of $1.7 billion and $8.3 billion respectively according to Reuters.
Okunade further explained that the global lockdown which crippled global oil demand hurt sales performance in H1, however, H2 may be much better for oil producers as OPEC+ production cuts and gradual reopening of the world economy has helped boost oil prices in recent months.
