August 10, 2026/InvestmentOne Report
Okomu Oil Palm Plc s H1:2026 revenue declined by 3.50% YoY to NGN125.29bn, as local sales fell 3.19% to NGN113.22bn and export sales declined 6.38% to NGN12.06bn. More importantly, cost of sales increased by 3.84% to NGN44.56bn despite the weaker topline, pushing gross profit down 7.13% to NGN80.73bn and narrowing gross margin by 252bps to 64.44%. Operating expenses also rose 12.23% to NGN20.79bn, reducing EBIT margin to 47.84% from 52.68%.
The H1 numbers therefore point to a cost-price mismatch rather than simply weaker sales, as costs remained sticky while realised selling prices came under pressure. Management indicated that product prices had fallen nearly 30% since December 2025, linking the weakness to increased imports, waivers and product misclassification.
This pressure was compounded by the reduction in crude-palm-oil tariff protection from 35.00% to 28.75%, which narrowed the pricing advantage enjoyed by domestic producers. While Nigeria’s structural palm-oil deficit remains supportive of long-term demand, weaker import protection has reduced Okomu’s near-term pricing power, making margin recovery increasingly dependent on stronger realisations and better cost absorption.
Q2 Cost-Price Mismatch Reversed Q1 Margin Strength: The main earnings deterioration emerged in Q2, as revenue fell 7.52% YoY while cost of sales rose 19.88%, compressing gross margin to 50.46% from 61.78% in Q2:2025 and 80.16% in Q1:2026. The pressure was broad-based across production, with oil-palm direct cost rising 18.15% YoY and rubber cost increasing 37.44%; consequently, H1 gross margin declined 252bps to 64.44%. At the same time, net operating expenses rose 12.23% YoY to NGN20.79bn, pushing OPEX/revenue to 16.60% from 14.27% and reducing H1 operating margin by 484bps to 47.84%.
This suggests Okomu was hit from both sides, as weaker domestic realisations reduced revenue absorption, while direct production and operating costs continued to rise. The pressure therefore went beyond the softer sector pricing environment. Presco’s H1:2026 performance reinforces this distinction, as broadly flat revenue still translated into 9.3% PBT growth, supported by better cost discipline and lower finance costs. Hence, while weaker pricing appears sectorrelevant, Okomu’s sharper earnings deterioration reflects a more company-specific cost-absorption problem. A sustained recovery will therefore require not only better domestic realisations, but also tighter control of production and operating costs.
Lower Loan Interest Could Not Fully Offset FX Charges and Higher Tax: Okomu’s financing mix improved in some areas during H1:2026, as finance income rose to NGN622.47mn, largely from interest on fixed deposits, while interest on long-term loans fell 33.39% YoY to NGN276.14mn. However, these gains did not translate into a lower overall financing burden, because exchange losses increased 21.09% to NGN1.18bn and bank charges more than doubled, pushing total finance cost 8.86% higher to NGN1.57bn.
In effect, lower borrowing interest was being offset by FX and transaction-related costs, limiting the benefit of the stronger finance income. Importantly, financing pressure eased materially in Q2, with finance cost falling 65.66% YoY to NGN187.75mn; yet PBT still declined 28.58%, confirming that the quarter’s earnings weakness was primarily operational rather than financing-led. At the H1 level, the weaker operating result and higher net financing burden pulled Profit Before Tax (PBT) down 12.03% to NGN58.99bn.
The decline then widened at the bottom line, as the effective tax rate increased by 354bps to 32.64%, causing Profit After Tax (PAT) to fall faster by 16.42% to NGN39.73bn. Although this remains below FY:2025’s 36.08% tax rate, the higher H1 charge reduced PBT-to-PAT conversion and drove EPS down to NGN41.65 from NGN49.83.
Inventory Build Weakened Cash Conversion, Though Liquidity Improved: Inventory nearly doubled from FY:2025 to NGN36.61bn, driven largely by finished palm-oil and rubber stocks, which rose 267.89% to NGN23.60bn. This build-up tied more cash into working capital at a time when domestic sales and realised prices were already under pressure, contributing to the 48.75% YoY decline in operating cash flow to NGN29.58bn. Consequently, cash conversion weakened to 74.45% of PAT from 121.42%, while higher cash tax payments of NGN27.59bn, versus NGN13.26bn previously, placed an additional drag on cash generation.
Nevertheless, the business remained cash-generative, as operating cash flow still covered investment spending and left simple free cash flow positive at NGN23.45bn. Weaker cash conversion did not translate into weaker liquidity. Cash increased 65.33% from FY:2025 to NGN21.40bn, while conventional interest-bearing loans declined by about 10.39%; together, these movements left Okomu with approximately NGN15.30bn of net cash before lease liabilities and improved the current ratio to 1.40x from 0.94x.
The balance sheet therefore remains capable of absorbing the working-capital pressure, but the composition of that liquidity matters: a growing share of current assets is now tied to inventory rather than immediately available cash.
OUTLOOK: We expect H2:2026 earnings to remain under pressure, as the current pricing and cost dynamics are unlikely to support a meaningful near-term margin recovery. Our FY:2026 estimates are revenue of NGN204.10bn, EBIT of NGN85.72bn, PBT of NGN92.46bn and PAT of NGN55.72bn. Upside to our estimates would require stronger domestic realizations and improved cost absorption, while slower working-capital normalization and a higher effective tax rate remain key downside risks. Although Okomu retains strong long-term demand fundamentals and balance-sheet support, we believe these positives are adequately reflected in the current market price. Our NGN1,141.83 target price implies 19.48% downside; therefore, we maintain a SELL rating on OKOMUOIL..
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