Okomu Oil’s Revenue And Profit Surge On Domestic Sales Recovery In Q1 2020

Must Read

How To Block Your Bank Account And SIM Card In Case Of Emergency

Losing your phone and wallet or having them stolen can be very frustrating. However, in case that happens to...

List of First Bank of Nigeria Sort Codes in Nigeria

The sort code is a number that usually identifies both the bank and the branch where an account is held. The sort...

List of United Bank for Africa (UBA) Sort Codes & Branches (with addresses) in Nigeria

The sort code is a number that usually identifies both the bank and the branch where an account is held. The sort...
- Advertisement -

CPO volume growth drives accelerated Revenue growth

In its recently released Q1 2020 financials, Okomu oil reported a 65.5% y/y increase Revenue to N7.0bn in Q1 2020 from N4.2bn in Q1 2019. The recovery in Revenue was remarkable and beat our forecast as annualised Q1 2020 Revenue of N27.9bn prints above our FY forecast of N26.5bn by 5.3%. We note the remarkable recovery in Revenue was driven by increased local sales (+81.6% y/y to N6.4bn) while export sales continue to remain pressured (-12.5% to N0.6bn). The surge in local exports remains driven by the closure of the land borders which has prevented the importation of illegal olein used in crude palm oil (CPO) production. Export sales to international markets remain pressured with largest importer of CPO, India, implementing import tariffs on CPO imports into the country. CPO prices have also been trending higher with PKO price climbing 16.4% y/y to US$820.58/MT in Q1 2020.

Margins expand on the lower cost of sales

The company’s cost of sales dipped significantly, declining 69.9% y/y to N0.3bn in Q1 2020 from N0.8bn in Q1 2019. The decline in cost of sales was broad-based with the cost of sales on Oil Palm (down 67.0% y/y) and Rubber (down 84.1% y/y) declining. Against this backdrop, Gross Profit jumped 99.1% to N6.7bn in Q1 2020 from N3.4bn in Q1 2019. In the same vein, gross margin expanded by 16.3ppts to 96.4% in Q1 2020.

- Advertisement -

Operating performance strengthens despite the spike in Opex

In Q1 2020, Okomu oil recorded a significant spike in Net Operating Expenses which climbed 71.0% y/y to N3.5bn from N2.1bn in Q1 2019. The company’s quarterly financials don’t provide a breakdown of the Net Operating Expenses, however, we note higher volumes sold within the quarter would have impacted Material costs and Technical fees. Des[ite the spike in Opex, faster growth in Gross Profit ensured Operating profit accelerated 142.6% y/y to N3.2bn in Q1 2020 from N1.3bn in Q1 2019.

Finance cost jumps on higher leverage

Net finance cost jumped by 251.8% y/y to N0.2bn in Q1 2020 from N0.05bn in Q1 2019. This was primarily driven by a spike in Finance cost (up 153.7%). The growth in Finance cost was down to higher Loans and Borrowings were taken by the company to support its Capital expenditure spend. Nevertheless, Pre-Tax profits climbed 137.9% y/y to N3.0bn in Q1 2020 from N1.3bn in Q1 2019. The company has seen its Tax holiday expire and as a result, recorded a tax expense of N1.0bn rather than a tax credit of N0.3bn in Q1 2019. While this impacted on Net margin (down 7.4ppts to 29.0%), Net profit grew 31.8% y/y to N2.0bn in Q1 2020 from N1.5bn in Q1 2019.

Read Also:  In recessive year, Okomu Oil made NGN4 billion profit
- Advertisement -

Outlook: Outlook remains promising on volume and price growth

Volume & Price growth to sustain accelerated revenue

We remain very positive on Okomu oil going forward reflected in our 40.7% y/y forecast for Revenue growth. Our optimism ]on the company’s revenue growth is premised on strong growth in volumes and price. We forecast a 29.7% y/y growth in CPO volumes sold to 59,928MT while we forecast prices would remain sturdy with a 15.0% growth. However, we expect Rubber volumes to remain weak as we forecast a 6.3% y/y decline to 8,641MT while prices are forecasted to remain fairly stable.

EPS forecasted to print at N8.45/s

- Advertisement -

We note the company now operates higher financial leverage but remains insignificant and thus, we do not expect higher Finance cost to impact on the company’s Net Income. However, with the company’s tax holiday over, we expect Okomu oil will record higher tax expense in 2020. In addition, we note further devaluation of the naira would impact on the company’s costs. Nevertheless, we do not expect the pressures to outweigh the company’s revenue growth. Against this backdrop, we forecast a 59.7% y/y increase in Net Income to N8.1bn while we forecast EPS will print at N8.45/s in 2020.

BUY recommendation with a target price of N89.41/s

We have a target price of N89.41/s on Okomu oil which represents a 62.4% upside on Friday’s closing price of N55.05/s. We place a BUY recommendation on the stock. Our recommendation hinges on the company’s above-average fundamentals across Revenue growth, Net Income growth, Return on Equity and Low financial leverage. Our EPS forecast implies Okomu oil trades at an implied forward PE multiple of 6.5x which is a steep 174.0% discount to our peer average of 17.8x. Furthermore, the stock has a negative 1-Year return of 18.2%, with EPS forecasted to grow at 59.7%, we see the stock as deeply discounted with a decent upside.

- Advertisement -
Okomu Oil's Revenue And Profit Surge On Domestic Sales Recovery In Q1 2020 - Brand SpurOkomu Oil's Revenue And Profit Surge On Domestic Sales Recovery In Q1 2020 - Brand Spur

Subscribe to BrandSpur Ng

Subscribe for latest updates. Signup to best of brands and business news, informed analysis and opinions among others that can propel you, your business or brand to greater heights.

- Advertisement -

LEAVE A REPLY

Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Okomu Oil's Revenue And Profit Surge On Domestic Sales Recovery In Q1 2020 - Brand SpurOkomu Oil's Revenue And Profit Surge On Domestic Sales Recovery In Q1 2020 - Brand Spur

Latest News

Chubb launches “Chubb LifeBalance” in Korea, a 360 degree personalised Health and Well-being App

SEOUL, SOUTH KOREA - Media OutReach - 12 April 2021 - Chubb today announced its release of "Chubb LifeBalance" in Korea, a digital health and well-being application that encourages people to incorporate healthy routines into their lifestyle.


Okomu Oil's Revenue And Profit Surge On Domestic Sales Recovery In Q1 2020 - Brand Spur


Chubb LifeBalance comprehensively assesses the lifestyle of users and provides a holistic view of health to help them to objectively measure and manage their own health condition.


Once users set their personal goals within the app, such as walking 5,000 steps a day, reducing snack consumption, and establishing a meditation and/or sleep routine etc., the coaching functionality starts to monitor and encourage the users to achieve their goals.


Chubb LifeBalance tracks and records over 115 different activities—including yoga, swimming, boxing, and meditation, and lets users invite their friends and family to join challenges and compete in these activities together. It connects with a full range of health devices and other apps such as Fitbit, Strava and Garmin.


Based on over 2,500 clinical papers and years of clinical data collected from over 300 million people, reputable teams from the Massachusetts Institute of Technology (MIT) USA participated in building a credible health score system behind the app so that users can effectively monitor their overall health and well-being.


The health points, based on activities and goal achievements set on the app, can be exchanged for mobile vouchers at various coffee shops, gas stations, and grocery stores to enjoy varied benefits. These are only available as exclusive incentives to existing Chubb customers.


Edward Ler, Country President of Chubb's general insurance business in Korea said, "Chubb LifeBalance was created to offer more advanced and personalized health and well-being services for the customers in Korea who lead busy lifestyles. We believe Chubb LifeBalance will help our customers strive towards a sustainable and balanced lifestyle."


The app is currently available on the Google Play Store and Apple App Store.


About Chubb

Chubb is the world's largest publicly traded property and casualty insurance company. With operations in 54 countries and territories, Chubb provides commercial and personal property and casualty insurance, personal accident and supplemental health insurance, reinsurance and life insurance to a diverse group of clients. As an underwriting company, we assess, assume and manage risk with insight and discipline. We service and pay our claims fairly and promptly. The company is also defined by its extensive product and service offerings, broad distribution capabilities, exceptional financial strength and local operations globally. Parent company Chubb Limited is listed on the New York Stock Exchange (NYSE: CB) and is a component of the S&P 500 index. Chubb maintains executive offices in Zurich, New York, London, Paris and other locations, and employs more than 30,000 people worldwide. Additional information can be found at: www.chubb.com.


Okomu Oil's Revenue And Profit Surge On Domestic Sales Recovery In Q1 2020 - Brand Spur
- Advertisement -
BrandsPur Weekly Cartoons
- Advertisement -Okomu Oil's Revenue And Profit Surge On Domestic Sales Recovery In Q1 2020 - Brand SpurOkomu Oil's Revenue And Profit Surge On Domestic Sales Recovery In Q1 2020 - Brand Spur