With the upward trend in global oil prices, investors are building positive sentiments around oil, thereby ensuring that the oil and gas sector on the Nigerian Exchange (NGX) Limited grew by N145.734 billion in the first nine months of the year.
The gain was triggered by the gains in the share prices of Seplat Energy, Eterna and Oando Plc.
Market observers said the current global oil trend suggests that the increase in the average Brent prices would translate to an increase in revenue for oil companies which should also reflect in the earnings per share.
Also, the Oil & Gas Index recorded the highest positive movement to reflect a growth of 62.37 per cent for the year-to-date (YTD) as of September 30, 2021. NGX Premium index followed with a gain of 117.27 per cent, while NGX Pension index rose by 11.79 per cent.
The NGX Oil & Gas Index comprises nine listed Oil and Gas Marketing companies: Ardova Plc, Conoil Plc, Eterna, Japaul Gold and Ventures, MRS Oil Nigeria, Oando, Seplat Energy, Total Nigeria and Capital Oil.
Capital market analysts said the growth in the NGX Oil & Gas Index was spurred by gains in the share prices of Seplat Energy, Eterna and Oando.
According to them, Seplat Energy, being one of the major players in the Nigerian upstream sector, the company’s share price has seen an impressive gain of 76.49 per cent from N402.3 in January to N710.00 as of September 30, 2021.
“Eterna Plc began the year with a share price of N5.10 and has since gained 37.25 per cent to close the trading day on September 30, 2021 at N7.00. The company deals in the manufacture, marketing and distribution of chemicals and lubricants and in Q1 2021, recorded a 171.02 per cent growth in net profit from negative N358.28 million to N254.45 million which contributed to the positive sentiment around the stock, while investors renewed their interest in Oando shares following the recent settlement of the Company’s four-year rift with the Securities and Exchange Commission (SEC).”
They added that investors can expect to see a boost in the price of Seplat Energy shares and, consequently, in the NGX Oil & Gas Index if the upward trend in global Brent prices continues.
The chief operating officer of InvestData Consulting Limited, Mr Ambrose Omordion said despite that local equities benchmark index closed in negative zone of 0.12 per cent in the first nine months of the year, the Oil & Gas closed on a strong positive performance of 62.37 per cent at the end of period under review as investors were bullish on stocks in the sub-sector.
He noted that Seplat Energy shares gained 71.51 percent amid the rising crude oil prices at the international market; spot Bonny light crude oil price increased to $74.16 per barrel on June 30, 2021 from $50.59 per barrel it closed on December 31, 2020.
The managing director/chief executive officer of Enterprise Stockbrokers Plc, Rotimi Fakayejo attributed the oil and gas performance to higher margin in crude oil products, stressing that the ease of movement also contributed to revenue and profit.
According to him, these companies reported an increase in revenue due to higher margin in products they sold this year. The restriction of movement eroded their revenue last year but with the ease on COVID-19 lockdown, they were able to grow revenue that translates into profit.
He maintained that investors can always consider buying Total Nigeria shares over its intrinsic fundamentals on the NGX, saying that “Total Nigeria is one of the most reliable Oil & gas stocks on NGX and the company, by year end, is going to have an EPS of N35.00.
“The company’s payout is always 70 to 80 per cent every year and they may still pay a dividend of N20.00 at the end of 2021 financial year. It makes a lot of sense for investors to buy Total Nigeria and Seplat Petroleum shares on NGX,” he said.
On the outlook for the sector, analysts at Cardinalstone stated that the Petroleum Industry Bill (PIB) passage is likely to be one of the critical drivers of investment in Nigeria’s upstream oil and gas space in the medium-to-long term.
“In the short run, exogenous factors affecting oil demand and supply are likely to remain essential determinants of ROI, rig counts, and linked CAPEX. On the downstream market, earnings should improve due to the COVID-induced low base effect from last year and rising air travel in 2021. We, however, note the likelihood of sustained low PMS margins in the sector, with the inclusion of subsidies in 2022 to 2024 MTEF document blurring hopes of imminent deregulation.
“Instead of outright deregulation, we believe the authorities are more likely to favour an adjustment of PMS pump price in H2, 2021 to reduce subsidy burden and keep the risk of potential public backlash contained ahead of the pre-election year 2022,” they pointed out.