Okomu Oil Palm Plc has released its Q3 2018 for the period ended 30th September which shows earnings rose to 1.3 billion versus ₦159 million in Q2 2017, translating to an Earnings Per Share (EPS) of 1.36. This represents a rebound in earnings following a weak Q2 2018. Cumulatively, profit after tax (PAT) was up 13.3% Year on Year to 7.2 billion, translating to a 9-Month 2018, EPS of 7.59.

According to a result breakdown by Analyst at ARM Securities, reveals that the company recorded revenue contraction of 8.9% to ₦3.75 billion largely driven by the free fall of global Crude Palm Oil (CPO) prices (-21% Year on Year to $512/MT) and rubber prices (-9% Year on Year) in the period.

For context, given that Okomu’s CPO prices largely mirrors global prices, local CPO prices contracted 6% Year on Year over the period. Analyst believe volumes rose during the period (+5% Year on Year) which accounts for the tamer flattish growth in CPO sales (+1 Year on Year to 3.15 billion) over Q3 2018.

Elsewhere, given that Okomu exports all its rubber, export sales (-36% Year on Year to 598 million) were marred by plunging rubber prices in the period. Over Q3 2018, cost of sales (-55.9% Year on Year to 504 million) eased with Okomu recording its lowest cost to sales ratio (Q3 2018: 13.5% vs 29% in Q4 2018) in eight years.

This came as a surprise as Okomu usually records higher cost in H2, which is usually its planting season. More so, the firm has been grappling with bottlenecks in achieving its planned energy mix due to the failure of Benin Electricity Distribution Company (BEDC) to supply adequate power due to disruptions. Accordingly, on the back of lower than expected cost of sales, gross margin expanded to 86.5% from 71% in Q3 2017.

Further down, in lock step with declining cost of sales, operating expenses dipped 9.9% to 1.46 billion with OPEX to sales plunging 50bps Year on Year to 39%. As a result, EBIT margin jumped to 47.5% from 31.5% in the prior year. Overall, despite lower finance income (-44.4% Year on Year to 75.2 million), which is reflective of lower foreign exchange gain emanating from the stability in the Naira as well as lower yield environment — and higher interest expense (+11.6% Year on Year to ₦78.4 million) — earnings spiked from 159 million in the prior year to 1.3 billion over Q3 2018.

Business day

Analyst opinion: Okomu trades at a current P/E of 8.29x which is at a discount to MENA peer average of 13.5x and Presco of 9.2x. ARM Securities have a FVE of 92.45 which translates to a STRONG BUY rating on the stock.


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