Culled—Proshare
July 31, 2019/ARM Research
Earnings remain pressured
Last week, The Okomu Oil Palm Plc released its second quarter 2019 result wherein it reported 38.4% YoY decline in EPS to N1.60 emanating from lower CPO prices and higher operating cost (+26.7% YoY to N1.9 billion) over the period. Factoring the Q2 19 numbers, cumulative H1 19 EPS declined 57.4% YoY to N2.65.
Revenue slump on lower CPO prices
Following the bearish run in global CPO prices (-16% YoY) alongside the infiltration of CPO into Nigerian from neighboring countries, Okomu’s CPO revenue (-29.6% YoY to N3.6 billion) remained pressured, while export revenue from sale of rubber rose (+58% YoY to N730.6 million) on the back of higher global rubber prices (+18% YoY). Overall, the company’s sales dipped (-22.4% YoY to N4.3 billion) over the period. Reflecting the lower volumes sold over the period, cost of sales (-25.3% YoY to N853 million) declined, largely from the Oil Palm (-31% YoY) segment. While the gross margin expanded 80bps, gross profit declined 21.6% YoY to N3.5 billion over the period. This alongside higher operating expenses which in our view is reminiscent of ongoing expansion work in the company deteriorated operating profit (-46.3% YoY to N1.6 billion), with EBIT margin contracting to 36.5% from 52.7% in the prior period.
Positively, the company reported interest expense of N25 million in Q2 19 relative to N125 million in Q2 18. This is largely driven by lower foreign exchange losses in the period due to stability in USDNGN over the period.
In addition, the company secured approval from the CBN for an agricultural credit loan under a scheme of the Federal government to the tune of N10 billion. Over the period, total amount received is N1.7 billion. Negotiation is still ongoing to determine moratorium period before payment commences.
Although, Operating expenses is tracking ahead of our estimates, we envisage a more normalized expenses in subsequent quarters. Thus, we leave our FVE unchanged at N75.6 which now translates to a BUY rating from NEUTRAL in our last communicated report. The change in rating largely reflects the recent price decline in price. Okomu trades at a current P/E of 9.7x relative to 11.7x for Presco.
