· Seplat has announced the release of US$368m in escrow cash. This is part of a total amount due of US$453m, which was allocated for an underlying acquisitions earmarked in Q1 2015.
· Investors may have thought that given the escrow nature attached to these funds, there was never any doubt that they would be repaid. We were aware of a timing issue related to exactly when the funds would be remitted.
· We have therefore added back N134/share (43p/share) in value from the US$368m remitted, which increases our target price from N457/share to N749/share, and maintain our Buy recommendation.
· We know that Seplat previously unsuccessfully bid for Afren (Sell, TP 0, price 1.9p), and so, given the timing of the proposed recapitalisation vote due on 24 July, a full takeover could still be possible if a ‘No’ vote is successful.
· In our previous note dated 9 January ‘Bargain Hunting in the Delta’ we examined the logic of any merger/acquisition between the two companies. We concluded that it could create the largest indigenous E&P in Nigeria, doubling Seplat’s 2P reserves, and trebling 2P and 2C reserves/resources, with the potential to achieve 200kboepd in production by 2018/19. Any acquisition of Afren would be a transformation in our view for Seplat, and could provide a significant catalyst to its shares given the discounted price which they could achieve now.
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