OKOMUOIL Records N73m Net Finance Expense in Q4 2015; Shares Rated NEUTRAL

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Thursday, March 31, 2016 10:25AM /FBNQuest Research

Event:
Okomu Oil reports Q4 2015 results

Implications: Possible modest upward revisions to consensus estimates

Positives: Total costs declined by -21% y/y

Negatives: Net finance expense of –N73m vs +N89m in Q4 2014

Yesterday evening, Okomu Oil (Okomu) reported Q4 2015 results which showed that sales grew 13% y/y. Q4 2015 PBT and PAT of N343m and N493m compare with Q4 2014 PBT and PAT of –N173m and –N167m respectively. It appears that the company reclassified some costs between cost of goods sold (cogs) and operating expenses (opex). As such, our commentary on costs is limited to “total costs” (cogs + opex) – by extension, no meaningful commentary can be made on the quarterly gross margin trend.

The PBT was helped by a -21% y/y decline in total costs which more than offset a –N73m net finance expense charge (vs. +N89m in Q4 2014). PAT came in higher than PBT due to a tax credit of N83m and other comprehensive income of N66m. On a sequential basis, sales and PBT declined -28% q/q and -18% q/q respectively.

However, PAT advanced by 36% q/q, again owing to the tax credit and OCI gain in Q4 2015. We attribute the weaker sequential sales in Q4 to seasonality. The end-Dec period is not usually one of Okomu’s stronger quarters (in terms of sales) owing to weaker palm oil yields. Compared with our estimates, Q4 PBT came in significantly ahead due to sales coming in 23% ahead of our forecast.

On a full year basis, while sales grew 13% y/y, PBT and PAT advanced by greater margins of 52% y/y and 85% y/y respectively. Although net finance charges were 7x what was recorded in 2014, this was offset by a -5% y/y decline in total costs. Compared with consensus estimates, FY sales and PBT were broadly in line.

Okomu declared a dividend of 10kobo per share, implying a dividend yield of 3% and a payout ratio of 4%. Despite higher earnings y/y, the dividend is -60% lower than what was paid last year. Year-to-date, Okomu shares have gained 3.7%, outperforming the broad index which has declined -11.3% ytd.

The agriculture sector, of which the palm oil industry is a sub-sector, is one of the sectors the federal government is prioritising as part of its reform agenda. Demand for palm oil in the country still outweighs supply; given the import-substitution policy which the government is pushing aggressively, we continue to see potential (in the form of y/y revenue growth) for the local players in the palm oil industry.

We rate the stock Neutral. Our estimates are under review.

Okomu Oil’s Q4 2015 results: actual vs. FBNQuest Research estimates (N millions)



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