Okomu Oil Palm Company Plc Q1’20 results – Earnings surge on strong domestic sales

Ellah Lakes discusses deal to acquire Delta State-based oil palm processing firm
Palm fruit ready to be taken to the mill.
Okomu Oil Palm Company Plc (OKOMUOIL) has announced a 101.4% YoY surge in earnings to N2.0 billion in its Q1’20 unaudited results. The numbers suggest a significant improvement in margins and robust cash flow generation that may be closely linked to ongoing border closures. 
Some positives:
  • OKOMUOIL reported a 65.5% YoY jump in turnover to N6.9 billion in the quarter, following an 81.6% YoY increase in local sales which masked the weakness in export revenue (-12.5% YoY). Growth in Q1’20 revenue likely reflects greater harvesting from matured areas of previous years’ planting. This may have been largely supported by a greater share of domestic demand occasioned by the ongoing border closures. We believe the bulk of OKOMUOIL’s export revenue is derived from rubber, which is completely shipped out of the country by the company
  • Cost of sales declined by c.70.0% YoY to N252.0 million. The cost improvement cuts across both oil palm and rubber segments. We, however, believe there could be some reclassification between the cost of sales and other operating expense in coming quarters
  • Cash generated from operations surged to N3.6 billion in Q1’20 from N7.2 million in Q1’19, aided by a significant surge in cash receipt from customers (+129.3% YoY)
Some concerns
  • OKOMUOIL’s operating cost rose by c.71.0% YoY to N3.5 billion, but we believe this may also be subject to reclassification in coming quarters
  • The effective tax rate was also 12.1ppts higher YoY at 33.0% in the quarter but in line with regulation
  • Finance cost rose by 153.6% YoY likely due to the new long term borrowing obtained last year for business expansion

Okomu Oil Palm Company Plc Q1'20 results - Earnings surge on strong domestic sales - Brand Spur