Seplat Energy Plc has emerged as one of the most prominent success stories on the Nigerian Stock Exchange (NGX), delivering impressive returns over the past two years.
After achieving a 110% gain in 2023, the company achieved another impressive 147% gain in 2024, closing the year at N5,700 per share and a market capitalization of N3.35 trillion; the fifth most valuable on the NGX.
As 2025 unfolds, the key question remains: Can Seplat replicate its exceptional performance, or will the challenges ahead temper its growth trajectory?
Strong growth underpinned by strategic drivers
Over the past five years (2019-2023), Seplat has achieved compound annual growth rates (CAGR) of 34% in revenue and 7% in profit before tax (PBT), demonstrating resilience and value creation despite industry challenges.
In its latest results for the first nine months of 2024, Seplat reported a remarkable 483.43% year-on-year (YoY) growth in PBT to N366.711 billion, alongside a 124% YoY surge in revenue to N1.071 trillion.
This growth was largely driven by the depreciation of the Naira, which significantly boosted local currency revenue despite weaker performance when measured in constant currency (USD).
The company’s acquisition of Mobil Producing Nigeria Unlimited and plans to double production capacity in 2025 is transformative.
Seplat aims to increase production from 50,000 barrels per day to approximately 120,000 barrels per day, which could drive significant revenue and profit growth in both Naira and USD terms. This operational improvement is likely to sustain investor optimism heading into 2025.
Profitability and margins: A mixed picture
While Seplat’s pre-tax profit margin improved significantly in the first nine months of 2024, growing from 18% in 2023 to 34%, its net profit margin declined to 4.93%, down 49.8% YoY.
This decline was largely attributed to increased tax liabilities, a one-off issue that may normalize in 2025. The company’s five-year average net profit margin of 12.46% suggests relatively stable long-term profitability.
Seplat’s operational efficiency is further highlighted by its cash flow generation. The company generated N535.621 billion from operations in nine months, translating to an impressive cash flow per share (CFPS) of N910. This metric, critical for assessing a company’s ability to generate cash, is likely to attract more investor interest if the trend continues into 2025.
Market valuation: High expectations
At N5,700 per share, Seplat trades at a high price-to-earnings (P/E) ratio of 38x, reflecting elevated investor expectations. While the stock offers a dividend yield of 3.7%, some investors may question whether its current valuation leaves room for further upside in 2025, especially trading at 99.9% of its 52-week high.
Recent stock recommendations from analysts at Futureview and Arthur Steven Asset Management set an average target price of N5,058, implying a potential downside of -11.26%.
Recent stock recommendations from analysts at Futureview and Arthur Steven Asset Management set an average target price of N5,058, implying a potential downside of -11.26%.
This suggests that analysts view the stock as overvalued at its current price. However, it is important to note that analyst ratings and targets are subject to change based on future developments, industry dynamics, and company performance. At this premium valuation, Seplat appears priced for flawless execution and sustained growth. Any earnings miss or external challenge could lead to a significant correction.
That said, if Seplat continues to deliver exceptional cash flow generation and sustains growth in USD-denominated revenue, the current valuation could remain justified. These factors will be closely watched as investors evaluate the company’s premium positioning in 2025.
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Considering Seplat’s growth trajectory, high valuation, operational strengths, and consistent dividend payments, a 147% gain in 2025 may be ambitious but not entirely out of reach.