Okomu Oil Palm Company 9M 2021 Result: A Spring in Earnings Sees a Rise in Equity

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Sunday, November 21, 2021/12:57 PM /Jariyat Bakare, Proshare Research Intern/ Header Image Credit: Okomu Oil Palm

 

Okomu Oil Palm, best known for its agribusiness, operates two major businesses: crude palm oil and the rubber market. Okomu Oil has grown to become Nigeria's leading oil palm company with a production capacity of 45,400T in palm oil and 7300T of rubber. The agri-firm is not just known for profitability; its share price rose from N99 to N145 on the Nigeria Exchange Limited (NGX) with a market capitalization of N13.5tn.


In nine months of 2021, the company achieved a net profit margin of 39.22%, recording an N11.6bn in profit after tax on a N39.9bn equity base. Profitability ratios increased significantly on the back of low debt ratios.

 

Key Highlight

  • Revenue appreciated Y-on-Y by +66.73% from N18.62bn in 9months 2020 to N31.05bn in 2021
  • Cost of sales surged by +46.21% of N21.58bn in 9month 2020 to N31.56bn in 9month 2021
  • Operating profit grew by +41.40% to N13.01bn in9month 2021
  • Finance income increased by +24.16% to N381.95m in 9month 2021 compared to N307.62m in 9m 2020
  • Finance cost reduced by -75.32% from N450.31m in 9month 2020 to N111.14m in 9month 2021
  • Profit before tax significantly increased by +117.34% Y-on-Y to 14.82bn in 9month 2021
  • Basic earnings per share (eps) rose by +132.06% of N12.16 in 9month 2021
  • Total debt dipped by -11.58% Y-on-Y to N10.65bn in 9month 2021
  • Total asset went up by +19.92% to N60.50bn in 9month 2021

 

Share price movement-Climbing

In a statement recently released, the Nigeria Exchange (NGX) reclassified Okomu Oil Palm Plc from a Medium-Priced Stock Group to a High-Priced Stock based on the exchange's Pricing Methodology framework. This suggests that the stock price traded above N100 in at least 4 months out of the last 6months.


The price of the equity was relatively flat at the beginning of the year; however, between May and November, there was a steady rise. Earnings per share rose by +132.06% of N5.24k in 9month 2020 to N12.16k in 9month 2021. Year-to- date (YTD) share price returns stand at +56% as of 15 November 2021. However, its volatility reflects fluctuating market sentiments (see chart 1 below).


Chart 1: YTD Share Price Movement of Okomu Oil as of 15 November 2021

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Source: NGX, Proshare Research



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Operating Performance; A View from the Top

Turnover

Sales revenue heightened by +66.73% of 31.05bn in 9month 2021 compared to its corresponding year of N18.62bn; earnings from local sales contributed +86.52% as revenue and +13.48% as an export base. Over the period, the company's cost of sales rose by +46.21%, with oil palm taking the most significant part as 87% and export 13%. Analysts believe that the Y-on-Y increase in revenue is due to the rise in demand for palm oil (see chart 2 below).

 

Chart 2: Okomu Oil's YTD Revenue 9M 2017 - 9M 2021 (N'bn)

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Source: Okomu Oil’s Financial Statement, Proshare Research

 

 

Profit before tax

Profit before tax grew by +117.34% Y-on-Y to N14.82bn in 9months 2021 compared to N6.82bn in 9months 2020. Growth in PBT was largely on the back of an increase in finance income and a significant decline in finance cost. Finance income grew by +24.16% to N381.95m in 9months (see chart 3 below).

 

Chart 3: Okomu Oil's Profit Before Tax 9M 2017 - 9M 2021 (N'bn)

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Source: Okomu Oil's Financial Statement, Proshare Research

 

Current Ratio

Based on its historical performance, the agro-business current ratio fell in 9month 2021. The ratio dipped from 3.55 in 9months 2020 to 2.90 in 9months 2021. Current assets surged by +22.26%, and short-term liabilities spiked higher than current assets Y-on-Y standing at +49.68%. However, the figures show that the company has short-term assets covering its short-term liabilities (see chart 4 below).

 

Chart 4: Okomu Oil's Current Ratio 9M 2017 - 9M 2021

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Source: Okomu Oil's Financial Statement, Proshare Research

 

Acid test ratio/ Quick ratio

Okomu Oil's Acid test ratio slumped -31.98% to 1.46 in 9months 2021 compared to 2.14 recorded in 2020, indicating tightening liquidity based on slower-moving inventory even though the company could still meet its short-term obligations 1.46x (see chart 5 below).

 

Chart 5: Okomu Oil's Quick Ratio 9M 2017 - 9M 2021

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Source: Okomu Oil's Financial Statement, Proshare Research

 

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Asset Turnover Ratio

Okomu's asset turnover ratio rose significantly by +39.0% to 0.51 in 9months 2021 Y-on-Y. Total assets increased by +19.92% for 9months 2021, while revenue soared by +66.73% in 9months 2021. This signifies an improvement in the efficiency of the Company's assets (see chart 6 below).


Chart 6: Okomu Oil's Asset Turnover Ratio 9M 2017 - 9M 2021

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Source: Okomu Oil's Financial Statement, Proshare Research


Leverage Ratio

The company's debt-to-equity ratio dipped by -28.49% Y-on-Y from 0.37 recorded in 9months 2020 to 0.27 in 9months 2021. Total debt fell by -11.58% of its long-term obligations, and equity significantly rose by +23.65% in the period. This shows that the oil palm company focuses more on equity than debt financing its operations (see chart 7 below).

 

 

 

Chart 7: Okomu Oil's Leverage Ratio 9M 2017 - 9M 2021

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Source: Okomu Oil's Financial Statement, Proshare Research


Return on Equity (RoE)

The agricultural company's return on equity (RoE) grew to 29.00% in 9months 2021 compared to 12% recorded in 9months of the previous year. Equity spiked by +23.65% in 9months 2021, and net profit rose higher by +132.14% in the same year (see chart 8 below).


Chart 8: Okomu Oil's Return on Equity 9M 2017 - 9M 2021

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Source: Okomu Oil's Financial Statement, Proshare Research


Forward Thoughts

Analysts believe the upward trend in earnings and price would continue as the company consolidates its presence in the domestic oil palm market. Okomu's equity price and earnings may continue to rise as a cyclical stock despite a slow recovery from the COVID-19 pandemic.


According to managers at the company, the oil palm firm "...intends to increase ... production capacity to between 80,000 and 90,000 tonnes per annum by 2023 to meet the demand of its consumers".



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