Culled—Proshare

November 3, 2020

by CardinalStone Research

Okomu Oil Palm Company Plc Q3’20 Unaudited Results – Lower Domestic Sales Weaken Q3’20 Earnings

Okomu Oil Palm Company Plc (OKOMUOIL: TP – N82.12; 2.5% upside to market) just announced a 37.4% YoY decline in earnings to N992 million in its Q3’20 unaudited results. The decline in profit reflected weaker sales and higher net finance costs.

Key highlights of the third quarter results

OKOMUOIL reported a 27.0% YoY decline in turnover to N5.1 billion in the quarter, following declines in local (-29.0% YoY) and export (-15.5% YoY) sales. We note that the positive deviation of Q3’19 revenue from typical seasonality may have provided a high base that resulted in the current revenue contraction.

Gross profit margin contracted by 13.6 ppts YoY to 78.9% in Q3’20 as costs of sales more than doubled (105.5% YoY) despite the decline in sales. However, gross profit margin remains robust over the first nine months of the year (+2.7ppts YoY to 88.4%) on the impact of cost improvements in oil palm and rubber segments in H1’20. 

Net Finance cost rose by 22.6% YoY due to higher interest payments on long term loans (+55.1% YoY) and lower interest income. The latter reflects the lower yield environment while the former appears consistent with a higher outstanding debt stock of N11.0 billion (+33.5% YoY).

Lower effective tax rate of 26.7% (-5.9% ppts YoY) was unable to offset weaknesses elsewhere in the financials.

Cash generated from operations remained elevated at N6.2 billion in 9M’20 from N305 million in the corresponding period of 2019, buoyed by increased cash receipt from customers (+25.2% YoY) and lower cash tax payments.