Okomo Oil, Nigeria’s biggest producer of crude palm oil and the second biggest producer of rubber has released its Q3-2022 results, reporting a 52% decline in pre-tax profit to N1.1 billion down from N2.3 billion recorded in Q3-21.
The result is on the back of sustained supply chain/price disruptions of CPO in the international market influenced by the Russian/Ukraine crisis.
A review of the financial statements showed that Q3-22 revenue grew by 26.99% to N9.421 billion compared to N7.419 billion in Q3-21. Despite the revenue growth, profits declined by a whopping 40% as inflation-induced rising costs set the company back.
Breakdown
Revenue: The result also showed that the growth in revenue was due to the growth in local sales (+52.37% y/y), which accounted for 89.25% of total revenue.
- The export sales, which accounted for 10.75% of total revenue, shrank by 46.68% year-on-year. The company is yet to explain the reason for the drop in export sales.
- September YTD revenues is N50.1 billion up from N31 billion same period last year.
Gross profit margin: This shrank by 40.07% year-on-year to 50.13% in Q3-22 following faster growth in the cost of sales (+289% y/y) relative to revenue (+26.99%) y/y).
- A closer look reveals the margin drop was due to a 3-fold rise in the cost of raw materials for oil palm.
- We suspect this may be due to the higher cost of planting and harvesting its oil palm products.
Cash flow: OKOMU generated an N22.082 billion net cash flow from operating activities in addition to the N9.995 billion it opened the year with, from where it paid loan interest and loan reimbursement.
- It went further and spent N7.581 billion for the acquisition of property, plant, equipment (palm mill and building), and biological assets.
- The company closed the quarter with a cash balance of N9.561 billion.
The company’s share price: OKOMU is the 88th most traded stock on the NGX over the past three months and the share price movement has been less volatile.
- It closed its last trading day (Friday, November 4, 2022) at N169.50 per share on the NGX, having started the year with a share price of N142.00.
- This shows that the stock has since gained 19.4% off that price valuation ranking it 28th on the NGX in terms of year-to-date valuation.
Outlook: It has been an upside and downside performance over the years largely influenced by market cyclicality; CPO demand and price fluctuations, country macroeconomic changes, and policies/risks rather than production growth.
- The Company in its Q4-22 forecast report to the stock market has conservatively forecast revenue to decline sequentially by 7.16% to N8.794 billion in Q4-22 and also forecast the cost of sales, profit before tax, and profit after tax to increase sequentially by 40.48%, 81.58%, and 47.75% respectively. Profit after tax is forecast to grow to N1.791 billion in Q4-22.
- Revenue/earnings growth and/or meeting forecasts are driven by brand equity, production processes innovation, and customer needs/demand satisfaction. There has not been much stiff competition locally, as the leading producers hardly meet up local demand for crude palm oil.
What others are saying: According to Joe Onyuike, the National President of the Oil Palm Growers Association of Nigeria, Nigeria requires about $500 million worth of palm oil to meet local demand for the commodity.
- Also, data from the Nigeria Bureau of Statistics show that vegetable fats and oil (animal fats inclusive) accounted for 1.2% of Nigeria’s total imports in 2022.
- The Nigeria palm oil industry has potential and through expansion can the players tap in. OKOMU has a growing and robust retained earnings and also is a stable and consistent dividend payer.
Dividends: In 2021, the company paid a dividend of N6.677 out of a PAT of N11.539 billion.
- For the 9M-22-period, dividend payment was up to N14.309 billion to be paid from the PAT of N18.051 billion.
- Growth in dividends is healthy when it is underpinned by rising earnings and when there is not much need for investing for growth, albeit, there should always be a balance between growth and value.
