Investors on the Nigerian Exchange (NGX) with an interest in the upstream oil sector are limited by available opportunities. Aradel Holdings, Oando Plc, and Seplat Energy are the only listed upstream oil players.
These companies are emerging as the cornerstone of Nigeria’s upstream oil sector, particularly with respect to onshore and shallow-water basins.
In 2024 alone, these companies produced over 25 million barrels of oil and generated a combined revenue of N6.35 trillion—a testament to their substantial market influence and the significant store of value they represent. Yet, the pivotal question remains: which of these stocks holds the greatest potential for capital appreciation based on profitability and valuation metrics?
About Aradel, Oando & Seplat
Aradel Holdings is the most recent entrant to the NGX among the three companies and also the smallest in terms of assets and revenue. However, it presents significant growth potential for investors. This is largely driven by its participation in the Renaissance consortium, which is set to acquire Shell’s upstream arm in Nigeria, SPDC. Notably, Aradel boasts the most diversified portfolio among the trio, operating both a gas processing plant and a refinery.
Oando Plc, following its acquisition of NAOC (Agip), significantly expanded its asset base from N2.57 trillion at the end of FY 2023 to N7.51 trillion. While its growing debt profile raises some concerns, the company maintains strong growth potential. Oando’s strategic expansion into other markets, including Angola, and its planned takeover of Trinidad and Tobago’s national refinery, further reinforce its long-term growth prospects.
Seplat is the largest of the three companies, with its total assets at N9.82 trillion at the end of FY 2024. The group produced about 12.4 million barrels of oil in 2024, with about 40.8 billion cubic feet of gas produced during the year. With its acquisition of Mobil’s upstream assets in Nigeria (MPNU), Seplat has positioned itself for significant growth, similar to its industry peers.
Financial Performance
Aradel has distinguished itself as a revenue leader, posting an impressive 163 percent increase to N581 billion in FY 2024 from N221.1 billion the previous year. Seplat followed with a 137 percent surge, reaching N1.65 trillion from N696.9 billion, while Oando experienced a 45 percent growth, climbing from N2.85 trillion to N4.12 trillion.
Over the long term, Aradel outpaced its counterparts with a Compound Annual Growth Rate (CAGR) of 106 percent between 2020 and 2024, compared to 71 percent for both Oando and Seplat.
Profitability metrics further cement Aradel’s leading position. It achieved a net profit margin of 43 percent, significantly outperforming Seplat’s 13 percent and Oando’s 2 percent. With a Return on Equity (ROE) of 24 percent and a Return on Assets (ROA) of 19 percent, Aradel’s financial performance sets a high benchmark, even as the other companies continue to invest heavily in asset acquisitions that have yet to translate fully into cash flow.
Valuation
When it comes to valuation, Aradel presents an attractive proposition with a Price-to-Earnings (P/E) ratio of 9.38x and a Price-to-Book (P/B) ratio of 1.67x. In contrast, Oando trades at a higher P/E of 11.35x and shows a negative P/B ratio, raising concerns about its balance sheet stability. Seplat’s higher P/E ratio of 14.78x reflects robust investor confidence in its earnings growth potential.
Dividend policies also differentiate these companies. Seplat leads by offering quarterly dividends along with a special dividend at the end of the financial year. For FY 2024, Seplat is set to distribute N197.5 billion, representing an impressive 92.2 percent payout ratio.
Meanwhile, Oando has not paid any dividends since 2014 and, given its negative net assets of N273 billion, is unlikely to resume dividend payments in the near term. Aradel, on the other hand, delivered a dividend payout ratio of about 80.85 percent in 2023 and is on track to exceed this ratio following the distribution of N34.8 billion in interim dividends for 9M 2024.
Share price performance
On the NGX, Seplat’s share price has remained relatively steady at N5700 this year. Although Aradel and Oando have experienced declines of 10.5 percent and 9.55 percent respectively, Oando has demonstrated remarkable resilience over the longer term. Over the past year, its share price surged by 473 percent, reaching a 15-year high of N95.50 in September 2024.
Aradel, which briefly appreciated from N772.90 to N820 in October, has since experienced a downturn as investor sentiment shifted following a wave of selling from NASD participants. Aradel currently trades at N535, a 30.8 percent decline from its listing price.
In a market defined by limited choices, Aradel, Oando, and Seplat each carve out distinct investment narratives. Aradel leads with superior financial performance and diversification, Oando leverages strategic acquisitions and market expansion despite its debt challenges, while Seplat offers solid asset backing and attractive dividend returns.
For investors keen on tapping into Nigeria’s dynamic oil exploration sector, the decision ultimately hinges on balancing immediate dividend income, long-term growth potential, and overall financial resilience.
