Last week, Nigeria’s stock market extended its weekly bearish trend as the benchmark index of the Nigerian Stock Exchange (NSE) dipped 2.12 percent amid renewed political uncertainty.
This implies investors are realigning their portfolios by rotating into fixed income as yields of government bonds fell to their lowest levels in 5 – 7 months with treasury bills at the primary market auction conducted during the week getting more than ten times oversubscription.
This is even as the nation’s banking stocks, where foreign investors are most attracted to as a result of their transparency and liquidity, fell the most since 2016.
The oil & gas sector was not left out in the flood of losses as it also got its share last week to halt its four-week bull run.
In spite of these, checks by BusinessDay indicate that opportunities still abound in the sector, particularly certain equities with potentials to deliver returns for growth and value investors as well as those seeking to take advantage of dividend payment in the short term.
Our analysis revealed that amongst companies in the oil & gas industry, 11 Plc, formally known as Mobil, stood as the stock pick for the week.
Following a review of its 2018 nine-month financial statements, Nigeria’s second-largest downstream oil & gas company showed strong fundamentals.
Profit within the period grew 71.35 percent, making it the company with the third-highest growth in post-tax profit. Meanwhile, the company has been identified as a growth stock with a price-to-book ratio of 2.0x, rising above the industrial average of 1.22x. This signals a good pick for growth investors.
In agreement with the above stance, analysts at Meristem Securities Limited, a Lagos-based investment house, placed a “BUY” rating on the stock owing that the company has the best cost-to-sales ratio in the industry with 86 percent and return on equity after the first nine months of 2018 at 34.48 percent compared to an industry average of 17.60 percent. 11 Plc has a 21.8 percent upside potential, according to the analysts.
On the other hand, Seplat Petroleum Development Company Plc, a leading Nigerian indigenous oil and gas company, has been identified as an undervalued stock with strong fundamentals.
The conference call and webcast to present its full-year 2018 financial results scheduled to hold on Wednesday, March 6, came at the right for investors seeking capital appreciation and ready to take advantage of dividend payment.
Seplat shares have remained unchanged at N619 since Friday, Feb. 15 after it announced a closed period in the run up to the announcement of its 2018 full year results, bringing the stock to 19.04 percent close to its 52-week low of N520.
But Meristem analysts have placed its 2019 target price at N700.35 indicating over 13 percent from its current price.
As at the close of trading, Friday, Seplat’s price-to-earnings ratio stood at 2.71x, this is lower when compared with its peer in the upstream energy sector, Oando Plc, at 4.79x.
Besides, the company’s stock is selling for less than the actual worth of its assets as investors are willing to pay only 64 kobo for every naira of its book value. The industry average is about 1.22x, making Seplat a value stock.
In the first nine months in 2018, Seplat’s gross profit was up 145 percent to N93.51 billion from N38.08 billion in the same period in 2017
The oil company pulled itself out from a pool of losses as it made N27.97 billion as profit in the review period compared with a loss of N1.62 billion recorded in the corresponding period of 2017.
This was triggered by over 396 percent surge in its operating profit to N80.76 billion, while finance income rose to N2.05 billion in the nine months to September 2018 from $483 million in the previous year.
