On 30 June 2019, Seplat Petroleum Development Company Plc (LON:SEPL) announced its earnings update. Overall, analysts seem cautiously optimistic, as a 5.5% increase in profits is expected in the upcoming year, relative to the past 5-year average growth rate of -2.2%. Presently, with latest-twelve-month earnings at US$147m, we should see this growing to US$155m by 2020. In this article, I've outline a few earnings growth rates to give you a sense of the market sentiment for Seplat Petroleum Development in the longer term. Readers that are interested in understanding the company beyond these figures should research its fundamentals here.
Exciting times ahead?
The longer term expectations from the 6 analysts of SEPL is tilted towards the negative sentiment. Since forecasting becomes more difficult further into the future, broker analysts generally project out to around three years. I've plotted out each year's earnings expectations and inserted a line of best fit to calculate an annual growth rate from the slope in order to understand the overall trajectory of SEPL's earnings growth over these next few years.
This results in an annual growth rate of -7.2% based on the most recent earnings level of US$147m to the final forecast of US$124m by 2022. However, if we exclude extraordinary items from earnings, we see that the profits is predicted to rise over time, resulting in an EPS of $0.46 in the final year of forecast compared to the current $0.26 EPS today. The primary reason for earnings contraction is due to top-line expansion of 1.1%, which is predicted to lag cost growth leading up to 2022. Furthermore, the current 20% margin is expected to contract to 16% by the end of 2022.
Future outlook is only one aspect when you're building an investment case for a stock. For Seplat Petroleum Development, I've put together three fundamental factors you should further examine:
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Valuation: What is Seplat Petroleum Development worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether Seplat Petroleum Development is currently mispriced by the market.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Seplat Petroleum Development? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.