November 17, 2020/United Capital Report

Overview

Much ado about Palm oil?

Palm oil is of strategic importance as it is used in the production of more than half of the products sold in supermarkets globally. The continuous importance of Crude Palm Oil (CPO) for food, biofuel and cosmetics purposes has led to uptick in its demand universally. Palm oil remains the cheapest and most edible vegetable oil globally. The oil palm tree produces 4.95 ton of edible oil per hectare (ha), six times more than the rapeseed tree, the next highest.

In addition to its use as cooking oil, it is also used in the manufacture of soaps and detergents, cosmetics, pharmaceuticals, biscuits, biodiesel among others.

Outlook

We remain optimistic about the future of the Palm oil industry in Nigeria as the key player continues to invest aggressively in capacity expansion. For OKOMUOIL, we expect the c.9,000 hectares of mature plantation from its extension II to support growth.

Also, PRESCO expansion of its existing Palm Oil mill from 60 ton/hour to a 90 ton/hour milling plant by year-end 2020, construction of a new 60 ton/hour Palm Oil mill in Sokoban estate which is to be completed in 2023, and expansion of the company’s palm kernel oil plant to 350 ton/day PKO plant (current capacity: 60 ton/day) will support their topline growth.

Despite the recent rally in the stock market, we believe that the key tickers in the Palm oil industry offer an opportunity for investors to position. To further buttress our stand, valuation multiples of Nigerian players trade at a discount to African and Middle Eastern peers

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