Okomu Oil Palm Company Plc, one of Nigeria’s leading producer of Oil Palm and Rubber crash crops for local and exports consumption in its H1’2020 financial statements published on the Nigerian Stock Exchange (NSE) website on Tuesday 28th July 2020, grew its Turnover (Revenue) and Net-Income (PAT) by 57.92% and 58.44% respectively compared to the corresponding period in 2019.
Drivers of the strong Revenue performance
- The impressive Revenue performance reported by the company (especially from Oil Palm sales) was mainly driven by the 74.6% increase in local sales to ₦12.42 billion, compared to ₦7.11 billion reported in the corresponding period of 2019.
- The strong leap in local sales (we suspect) was driven by the decision of the Nigerian government to shut all her land borders with neighbouring countries since August 2019, to curb smuggling of cheap but inferior substitute from these countries.
- Besides, we also noticed that earnings from export sales dropped by 23.94% to ₦1.10 billion in H1’2020 amid a surge in demand from local consumers and the reduced average price of Oil Palm in the international market to MYR 2,450/T as against MYR 2,558/T in the corresponding period of 2019.
Cost of sales tapered despite increased Turnover, boost Profit Margin significantly
- Despite the significant jump in the company’s revenue from sales in the period relative to the prior year, its Cost of Sales for both Oil Palm and Rubber products tapered by 29.09% (to ₦996mn) and 69.77% (to ₦86.63mn) respectively compared to H1’2019.
- This we believe was supported by the gains from capacity expansion effort of the company which has recently resulted in a 4,000 hectares expansion of its Oil Palm plantation and a 1,500 hectares increase of Rubber plantation.
- Resultantly, Gross Profit Margin strengthened significantly, appreciating by 81% to print at ₦12.44 billion against ₦6.87 billion reported in the corresponding period of 2019.
Acquisition of New Loans for PPE drove Finance Cost up
- There was a 207.25% jump in the company’s finance cost to ₦310 million when
compared to the corresponding period in 2019.
- This (we suspected) was due to a 52.7% or ₦1.27 billion increase in New Loans (to ₦2.63bn), used in the acquisition of new Property, Plant, and Equipment (PPE) worth ₦1.97 billion in the period.
PBT, PAT, and EPS finished strong.
- As a result of the impressive performance of the company’s earnings and cost items, Pre-profit Tax (PBT), Net-income (PAT), and Earnings per share (EPS) reported in H1’2020 rose by 94%, 58.4%, and 58.5% respectively to settle at ₦5.5 billion, ₦4 billion, and ₦4.2k compared to ₦2.83 billion, ₦2.53 billion, and ₦2.65k in the corresponding period of 2019.
Balance sheet and Net Cash Flow gained further momentum.
- The company’s Current Ratio for the period printed at 2.41:1 against 2.20:1 in
H1’2019. This suggests that more easily than in the corresponding period of 2019, the company can offset all its short term obligations without experiencing a strain.
- Besides, the company’s Leverage ratio of 0.58:1 implied that its Total Asset value is almost twice as its Total liabilities. Hence, this suggests that the company is financially stable.
- For the Cash Flows analysis, the company’s Net Operating Cash Flow jumped 716.5% from ₦662.91 million in H1’2019 to ₦5.41 billion in H1’2020. This development (despite reporting negative Net Investing and Financing Cash Flows) drove the company’s Free Cash Flow up by 207.8% to ₦5.46 billion compared to ₦1.77 billion in H1’2019.
12-months outlook for the Business
- Despite the threat posed by the COVID-19 pandemic on the broader macroeconomic the environment in Nigeria and across the globe in the near term, we maintain a positive outlook for the business of Okomu Oil Palm over the next 12-months period due to its increasing maximization of the domestic market potential.
- We believe the business will continue to benefit from the protracted land border closure by the federal government and the increased funding of the agricultural sector by the current administration in its effort to diversify the Nigerian economy away from crude oil.
- Hence, we make an upward review of our 12-months target price for Okomu Oil Palm Plc to ₦74.80 from the ₦63.20 set in the 2019 financial year.