Seplat has announced plans to buy Eland Oil & Gas for a cash consideration of 166 pence per share, representing a premium of close to 30%. The acquisition will be financed using a mix of cash and new debt.
Eland’s main oil-producing asset is OML 40, which has gross output of up to 30,000bpd.
We highlight that the move is in line with management guidance to boost its production and reserves through organic and inorganic growth.
We initiated on Seplat in early September. We currently have a Buy rating on Seplat with a TP of NGN1,347 suggesting an ETR of 250%.
Our bullish view on Seplat is based on:
- The company’s balance sheet strength, characterised by a robust net cash position and a sizeable capital allowance (US$426mn on balance sheet at the end of H1 19), which should support organic and inorganic production growth.
- Its growing gas business, with the Assa North/Ohaji South (ANOH) development that should continue to diversify the company’s revenue and cash flow generation.
- Its recent efforts to diversify its oil export routes, which will increase the resilience of its operations. The company currently trades at a forward EV/EBITDA of 1.5x, representing a 28% discount to its 5-year historical average.