As I followed the Seplat-ExxonMobil debacle, where regulators have gone back and forth on whether to approve the sale of ExxonMobil's shallow water business, I pondered on how this would affect Seplat's share price as a publicly listed company.
Higher oil prices and low-interest rates have supported the Nigerian equity market’s performance since early 2020. However, foreign investors have been exiting the equities market due to fx scarcity. This became more pronounced in 2022, as fears of a recession and higher interest rates exacerbated these capital outflows.
The increased outflows were only met by more fx scarcity, as theft and vandalism had caused Nigeria’s main source of fx—oil receipts to decline.
As such, foreign investors took advantage of the dual listing of Airtel Africa and Seplat Energy Plc on both the Nigerian and London stock exchanges to repatriate their funds, leading to rapid price increases in these stocks and, in turn, the entire stock market.
To be very honest, my concerns were purely selfish.
You see, I have Seplat shares in my portfolio, and unsurprisingly, their value had begun to fall due to uncertainty about the sale.
This makes sense because I buy a company’s shares in anticipation of higher profits that the company would make. These profits would lead to higher cash flows and dividends paid to shareholders like me. Often, higher profits would also lead to share price appreciation as more investors vie for a slice of the pie. In the same way, any perceived threats to the business would trigger investors to sell the company's shares.
The same logic should apply to the stock market as a whole when compared to the state of the economy. Investors would expect lower economic growth, high inflation, unemployment, foreign exchange (fx) issues, and the like to